BANKING AND CURRENCY LEGISLATION 

MISCELLANEOUS SUGGESTIONS 

RECEIVED BY THE 

COMMITTEE ON BANKING AND^CURRENCY 

UNITED STATES ^^ENATE 



'A 



A 

SIXTY-THIKD CONGRESS 
FIRST SESSION 

RESPECTING 



PROPOSED CURRENCY REFORM 



Printed for the use of the Committee on Banking and Currency] 






WASHINGTON 

GOVERNMENT PRINTING OFriCE 

1913 



t\ 






COMMITTEE ON BANKING AND CURRENCY. 

ROBERT L. OWEN, Oklahoma, Chairman. 

GILBERT M. HITCHCOCK, Nebraska. KNUTE NELSON, MiBnesota, 

JAMES A. O'GORMAN, New York. JOSEPH L. BRISTOW, Kansas. 

JAMES A. REED, Missouri. COE I. CRAWFORD, South Dakota. 

ATLEE POMERENE, Ohio. GEORGE P. McLEAN, Connecticut. 

JOHN F. SHAFROTH, Colorado. JOHN W. WEEKS, Massachusetts. 
HENRY F. HOLLIS, New Hampshire. 

James W. Beller, Clerh. 
II 

Gift from 
Hon. Robert L. Owen I 

Nov. 4, 1031 / 



BANKING AND CURRENCY LEGISLATION. 



MISCELLANEOUS SUGGESTIONS RECEIVED BY THE SENATE COM- 
MITTEE ON BANKING AND CURRENCY, RESPECTING PROPOSED 
CURRENCY REFORM. 

San Francisco, Cal., November I4, 1912. 

My Dear Senator: Relative to conference had at luncheon on 
the 12th, on the subject of currency reform, at which time I made 
the suggestion that if the Democratic Party, now in power, having 
entire control of the Senate, House, and the Presidency, should give 
diligent attention to the reformation of the currency, providing a 
suitable and sound elasticity therefor, so indispensable in the con- 
duct of the nation^s business at various seasons, particularly crop 
seasons, that industrial panics in the United States could conveni- 
ently be put behind us as things of the past and placed within the 
history column. 

You suggested that I embrace my views in a letter upon this 
subject, and I am pleased to comply with your suggestion. 

First, I may say that Mr. George M. Reynolds, president of the 
Continental & Commercial National Bank of Chicago, one of the 
foremost financial institutions in America, delivered an address before 
the National Lumber Manufacturers' Association at Chicago, in 
May, 1911. I was so much impressed with the wisdom of his address 
that I offered a resolution that it be reduced to pamphlet form for 
convenient distribution. 

On perusal of Mr. Reynolds's address, herewith inclosed to you, 
I believe the subject will appear as one of extreme simplicity, rather 
than a complex one, as is generally thought to be the case. To my 
mind the financial problem is extremely simple. 

Yoii will remember that I suggested that Canada, having an 
asset currency, had never had an industrial panic in all of her his- 
tory." By an asset currency I mean a currency capable of prompt 
expansion by the deposit of gilt-edge securities with the proper 
authorities. For instance, a central bank with an adequate capital 
of, say, three hundred to five hundred million dollars, established 
at Washington, properly hedged in so it could not be made the 
object of control by any of the money powers of the country, but 
made up of people of the entire banking fabric of the Nation, and 
bv them manao^ed in the same skillful and excellent manner in which 
national banks are managed at the present time, would provide a 
convenient means for an elastic expansion and proper contraction 
when the need for funds was passed. 

In this connection I desire to present the following simple example, 
namely, that if in the city of Portland, distinguished by tJie residence 



2 SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

of yourself and other good citizens, all of the banks of your city, 
operating and cooperating through the medium of the clearing house, 
should find the money demand extremely strong and should estimate 
that, say, $5,000,000 would be necessary for the needs of the business 
community in addition to what was already available from the banks, 
between, say, the month of August and the 1st of December of the 
same year, the plan would be that they deposit $10,000,000 to 
$15,000,000 of choicest securities with the central bank, which secur- 
ities would rest upon property worth two or three times that amount 
of solvent wealth. 

This security would be as good as any on earth, and with this 
amount of gilt-edge security placed primarily in the custody of the 
clearing-house committee, under proper legal provisions, said com- 
mittee would be authorized to deposit it with the central bank and 
collect $5,000,000, same coming forward in progressive amounts from 
the central bank as required and taxed at a nominal rate of interest, 
though progressive in its ratio, to the end that the funds would in turn 
flow back from the Portland region to the central bank at Washington 
and the securities in turn sent back. 

By this method the matter of providing elasticity to the currency 
is as simple as in the case of a farmer who has 10,000 bags of wheat, 
conservatively worth $1 per bag, who places his wheat in a warehouse 
and borrows 50 cents per bag. A warehouse receipt is issued to him 
at the time he places it in the warehouse; the wheat is insured; 
bankers are willing to loan 50 cents on the wheat, insured in their 
favor, and at a reasonable rate of interest. The warehouseman has 
been benefited by having the wheat on storage at a reasonable cost 
of storage, the insurance company has received compensation through 
the medium of its policy, the farmer has received on his 10,000 bags 
$5,000 in cash, and when he sells his wheat he pays the money back 
plus interest. This is quite as complex as the currency system viewed 
from an intelligent standpoint. 

If I have not made myself entirely clear, I should be glad to have 
you address me on the subject at any time. Desire to say, in con- 
clusion, that if the currency is properly reformed and made sensibly 
elastic and provision is made for its convenient retirement when not 
needed, in my opinion the period of industrial panics will be a thing 
of the past, instead of wiping out hundreds of millions of dollars of the 
national wealth every 10 or 12 years. 

In conclusion desire to say that there appeared in yesterday's 
San Francisco Chronicle the inclosed editorial. The articles referred 
to in the editorial will undoubtedly be of much interest and I hope 
will be short and simple explanations of the system. Among the 
articles will be one by George M. Reynolds, author of the pamphlet 
I am inclosing. I shall take both the liberty and pleasure of forward- 
ing you these articles clipped from the Chronicle as they appear from 
time to time. 

Thanking you for an opportunity to present my views, I am, 
Very truly, yours, 

G. Wendling, Merchant. 

Hon. George E. Chamberlain, 

Portland, Oreg. 



SUGGESTION'S EESPECTING PROPOSED CUERENCY REFORM. 3 

Richmond, Va.', January 23, 1913. 

My Dear Sir: Noting that your committee is now giving careful 
consideration to the subject of currency reform, I respectfully submit 
the following suggestions, which are based upon years of close study 
of the currency problems of this country. 

It is not my purpose to discuss the necessity for a change of some 
kind, as I feel satisfied that the need for this is apparent to every 
member of your committee. 

To my mind, in order for any system to be effective it must possess 
at least three elementary attributes; first, absolute safety; second, 
unquestioned ability to pass at par in every section of the country; 
and third, such elasticity as will enable it to contract and expand 
freely in accordance with the demands of trade. 

The currency which, in my judgment, will best fulfill these require- 
ments is a note issue of the national banks of the country, the pay- 
ment of which is guaranteed by the United States Government. Cer- 
tainly no question could be raised by any note holder as to these 
notes being worth their face value, and with the present facilities 
aiTorded for the redemption of national bank notes, supplemented by 
such additional agencies as may appear necessary, there should be no 
question about these notes passing at par in every section of our land. 

The elasticity of the notes would be taken care of by the banks 
being allowed to issue only a certain percentage of their capital — for 
illustration, say, 60 per cent, at a tax of 2 per cent per annum, 20 per 
cent additional at, say, 3 per cent, and the remaining 20 per cent at 
5 per cent. In addition, provision should be made for the further 
issuance, in cases of emergency, of an amount equal to 25 per cent 
of the capital, one-half at, say, 6 per cent and one-half at 7 per cent; 
this last-mentioned currency to be secured by the deposit with the 
Government of satisfactory securities or commercial paper. 

The notes that are taxed 5, 6, and 7 per cent would be issued only 
under unusual conditions and would be retired as promptly as the 
demand which caused their issuance disappeared. The banks should 
be allowed to retire these particular issues at will, with the additional 
authority given the proper officers to compel their retirement at any 
time. The 2 per cent and the 3 per cent notes will be ample in volume 
to take care of the usual business needs of the country, and the 
amount of these issues which banks should be permitted to retire in 
any one month should be limited. 

If no other consideration were involved than a satisfactory settle- 
ment of the currency problem, this fact alone would, in my judgment, 
justify the Government in guaranteeing the payment of the notes 
described above, especially as the Government is already in a sense 
the ultimate guarantor of the present issue of national bank notes 
secured by Government bonds. In addition to this, however, this 
action on the part of the Government would be entirely proper from 
a business or profit standpoint. 

Your committee is familiar with the very small percentage of loss 
which has been incurred by the depositors in national banks since 
the organization of the system, and if the new issue is limited to 
banks under Government control it is fair to presume the Govern- 
ment in indorsing these notes would not assume any more risk than 
the percentage of loss incurred as a result of such failure in the past. 
Even this risk can be almost entirely eliminated by making the notes 



4 SUGGESTIONS EESPECTING PEOPOSED CUEKENCY EEFOEM. 

a first lien upon the assets of tlie banks. In addition to this it is easy 
to estimate the very large income the Government would derive 
from the tax upon the various note issues. 

It is fair to assume that all of the banks would take out their full 
amount of the 2 per cent circulation allowed them under the law, 
which, even if no increase takes place in the aggregate capital of the 
national banks, would amount to at present (60 per cent of approxi- 
mately $1,000,000,000) $600,000,000, yielding an annual tax of 
$12,000,000. An average of 50 per cent, or even more, of the 3 per 
cent notes would always be in circulation, or say $100,000,000, at a 
tax of $3,000,000 per annum. The Government could thus count 
upon a mimimum annual income of $15,000,000, a part of which sum 
would be used in connection with refunding the Government bonds 
which would be released by national banks retiring their present 
circulation (as mentioned hereafter), and the remainder, after the 
payment of expenses and losses, would be set aside as a reserve fund 
to provide for future contingencies. 

This fund, with accumulated interest and the natural increase 
in the value of banking business in the country, would soon grow to 
enormous proportions, so that a limit could be fixed, after reaching 
which the entire tax could be diverted into the Public Treasury. 

In devising any currency plan for this country, proper provision 
must be made for the 2 per cent bonds now deposited by the national 
banks to secure circulation. The 3 per cent and 4 per cent bonds so 
deposited will take care of themselves. 

At present there are $682,000,000 of 2 per cent bonds used for 
circulation purposes. All of these bonds were sold by the Government 
at a premium and as, through the agency of the national banks, the 
Government has borrowed the money represented by these bonds at 
less than 1^ per cent per annum and has been able to sell the bonds 
at above par solely because of the circulating feature being involved, 
it can well afford to protect the national banks against loss by issuing 
a 3 per cent bond at par in exchange for the 2 per cent bonds now 
deposited to secure circulation. This would result in an additional 
interest charge per annum of $6,500,000, which will of course come out 
of the $15,000,000 taxes (minimum) mentioned above, and which 
additional charge would therefore in a sense be paid by the banks 
themselves. 

As it seems advisable that the Government's business transactions 
should be handled through the banks rather than that money should 
be accumulated in the Government's vaults at times when it is most 
needed for commercial purposes, the Government's working balances 
could be kept with national banks. Government 2 per cent bonds 
being required as security therefor. This, if done, would take care of 
approximately $150,000,000 of the $648,000,000 of bonds, so that the 
increase in the annual interest charge would be reduced from $6,500,- 
000 to $5,000,000 per annum. Furthermore, if only 2 per cent Gov- 
ernment bonds are accepted for Government deposits, banks could 
be made to substitute $32,000,000 of these bonds for other issues now 
deposited with the Government for this purpose, thus taking care of 
this additional amount of bonds and making it unnecessary to refund 
them into 3 per cent bonds. 

As the banks avail themselves of the privilege of taking out the new 
circulation, they should be forced to retire their bond-secured circu- 



SUGGESTIONS KESPECTING PROPOSED CUREENCY REFORM. 5 

lation as rapidly as possible, the circulating privilege being perma- 
nently withdrawn from the various issues of bonds so released. 

As a further security, the banks should be required to keep with 
the Government a gold reserve of, say, 20 per cent of the note issue, 
thus making the 2 per cent notes cost the banks net 2^ per cent and 
the 3 per cent notes 3f per cent, while the elastic or emergency cur- 
rency will cost, respectively, 6^ per cent, 7^ per cent, and 8f per cent^ 
which rates would force its prompt retirement when no longer needed^ 
the proper officers having, as stated above, the further power to call in 
these last three note issues whenever it should seem advisable to do so. 
The comptroller or other officers could also be granted the authority 
to require any bank, for cause, to deposit satisfactory collateral to 
secure its entire note issue. 

In order for this plan to be effective, it will be necessary for it to be 
operated under the personal control of the Comptroller of the Cur- 
rency, or other officer or officers to be created, and if there is any 
fear that these officers will possibly have too much power, it could be 
arranged that they should not be politically appointed but rather by 
a board to be formed along some such line as that suggested in the 
report of the Monetary Commission. If necessary the work of these offi- 
cers could be supervised by a commission elected in a similar manner. 

While, in my judgment, it is not essentially necessary in order for 
the above plan to be effective, I firmly believe that every effort 
should be made to simplify our banking system as much as possible. 
It occurs to me the best way to accomplish this is carefully and con- 
serv^atively to revise our national banking laws so that they will 
more nearly meet the needs of present-day conditions than can 
possibly be expected of an act which has remained practically 
unchanged for half a century. 

The powers of the national banks and their scope of operation 
should be so increased, along conservative lines, that it will include 
the best features of the banking laws of the various States, so that 
with these additional features and the power of note issue added, the 
State banks will quickly realize the advantage of their entering the 
national system. 

The experience of some of our States clearly indicates there are 
some powers which are not enjoyed at present by the national banks 
but which can be safely granted to them. In broadening the scope 
of national banks you would not only be increasing their ability to 
properly meet the needs of their respective communities, but would 
also make the national system so attractive that a majority of the 
State banks would quickly realize the advantages of becoming 
nationalized, resulting in a large proportion of the banking" resources 
of the country coming under Government control and also enabling 
the Government, through its superior methods of supervision and 
control, to give greater protection to the deposits of a larger number 
of citizens than is possible to-day. 

In presenting the above for your consideration, I have endeavored 
to cover the subject as fully as is possible in a communication of this 
kind, feeling that while some of the details may need amendment, a 
plan worked out along the general lines indicated will satisfactorily 
solve the question which you have under consideration. 
Very truly, yours, 

Jno. p. Branch, 
President Merchants National Bank of Richmond, Va. 



6 suggestions respecting proposed cueeency eeeoem. 
Suggestions as to Currency Reform. 

[By George M. Coffin, 311 East Seventeenth Street, New York City.] 
PROPOSED AMENDMENTS OF NATIONAL BANKING LAW. 

1. Prohibit the payment of interest by any national bank on any 
deposit with it by any other national bank or any other banking 
institution when such deposit under provision of any national or 
State law may be counted as a part of reserve against deposits. 

2. For violation of above section provide that any national bank 
paying or receiving interest on any such reserve deposit shall pay to 
the United States a penalty of not less than 10 per cent per annum 
computed upon the amount of the deposit for the period for which 
interest has been paid. 

3. On or before March 1 succeeding the enactment of this pro- 
vision require that every national bank now permitted to keep a por- 
tion of its reserve against deposits with a reserve agent shall have in 
its possession lawful money equal to one-half the amount now so 
permitted to be kept and by the 1st of March of the next year there- 
after, the remaining half of such permitted amount. 

4. Provide that any national bank now or hereafter having a cir- 
culation outstanding against 2 per cent United States bonds equal to 
50 per cent of its capital stock, shall be permitted to issue additional 
circulation up to the limit of its capital stock, subject to the following 
conditions: 

(A) That all circulation issued shall then as now be a paramount 
lien upon all the assets of the issuing bank, including the United 
States bonds on deposit, and the double liability of stockholders. 

(B) That all circulation shall be redeemable at the counter of the 
bank and at the United States Treasury in Washington as now, and 
in addition shall be redeemable on demand through any clearing- 
house of which the issutag bank is a member, and also at some national 
bank approved by the comptroller, located in the same State as the 
issuing bank, but not in the same place in said State. For the 
redemption of its notes at such redemption bank, the issuing bank 
shall maintain such a balance on deposit as may be deemed sufficient 
by the redemption bank, provided that no interest shall be paid or 
received on any such balance, subject to the penalty prescribed in 
section 2. 

(C) Against all circulation over 50 per cent of capital stock, the 
issuing bank shall maintain a lawful money reserve in its own posses- 
sion at the same ratio as that now required on deposits. 

(D) Circulation issued shall be subject to the following rates of 
taxation by the United States: Fifty per cent of capital, one-half of 1 
per cent per annum; 30 per cent of capital, 1 per cent per annum; 
20 per cent of capital, 5 per cent per annum. 

(E) For the redemption of the circulation of any failed bank whose 
assets shall be insufficient, every national bank issuing circulation 
beyond 50 per cent of its capital stock shall maintam with the United 
States in lawful money a lund equal to 5 per cent of such excess 
circulation. This fund must be invested in United States bonds, and 
the interest thereon as collected is to be added to the fund, as must 
also all taxes paid on circulation in excess of the cost of the admin- 
istration of the office of Comptroller of the Currency, mcluding the 



SUGGESTIONS EESPECTING PKOPOSED CUEKENCY EEFORM. 7 

salaries and necessary traveling expenses of all national-bank ex- 
aminers provided for in section 6. In case this redemption fund is 
depleted at any time it is to be replenished by a tax on all issuing 
banks not exceeding in any year 1 per cent of their annual average 
circulation in excess of 50 per cent of capital stock. 

5. Provide that the United States shall purchase at par from any 
national bank desiring to sell United States 2 per cent bonds now 
held in excess of 50 per cent of its capital stock, the funds for such 
purchase to be provided from the sale of United States bonds to be 
authorized for the purpose, bearing such a rate of interest as will 
cause the bonds to realize not less than par when sold. 

6. Provide that all national-bank examiners shall be compensated 
by salaries graded as to their capacity and responsibility by the 
Secretary of the Treasury and the Comptroller of the Currency and 
that in addition to such salaries all necessary traveling and hotel 
expenses when examiners are away from home shall also be paid 
by the United States out of the taxes on circulation, as provided in 
section 4, paragraph E. 

Geo. M. Coffin. 
February 14, 1913. 



Proposed Amendments to National-Bank Act. 

LAWFUL money RESERVE. 

1. Amend section 5191 and other related sections to provide that 
on and after a stated date no national bank, wherever located, shall 
be required by law to keep in its own possession a lawful money re- 
serve in excess of 15 per cent of its deposits and its circulation issued 
in excess of 50 per cent of its capital stock. 

ratio OF DEPOSITS TO CAPITAL STOCK AND SURPLUS FUND. 

2. Provide that whenever the net deposits of a national bank reach 
an amount equal to five times (or six times) the combined sum of its 
capital stock paid in and its surplus fund it shall be required to in- 
crease its capital stock by such an amount as will maintain this ratio 
between its deposits and its capital stock and surplus fund combined. 

LIMIT TO AMOUNT OF A NATIONAL BANK's INDEBTEDNESS. 

3. Amend section 5202, which excepts ''notes of circulation" in 
computing the limit of a bank's indebtedness for money borrowed, so 
as to except only "notes of circulation secured by United States 
bonds." 

Geo. M. Coffin. 
March 14, 1913. 

Reasons for Proposed Amendments. 

Much stress is laid by the advocates of a central banking institu- 
tion on the centralization of reserves in one great reservoir, but these 
advocates all admit that one, perhaps the greatest defect of our 
system, is the accumulation or centralization of these reserve funds 
ill financial centers, where they are invested too freely in speculative 



8 SUGGESTIONS EESPECTING PROPOSED CUEEENCY EEFOEM. 

ventures to the detriment of the strictly commercial and agricultural 
needs of the country. 

The great incentive and inducement for this concentration is the 
payment of a low rate of interest on such reserve funds, which other- 
wise must lie idle in the vaults of the depositing banks. 

Amendment No. 1 removes this incentive by prohibiting the pay- 
ment of interest on reserve deposits, and penalizes any bank either 
paying or receiving such interest. This provision paves the way to 
the accumulation of the equivalent of these funds in lawful money 
in the banks' own vaults gradually over a sufficient period of time to 
prevent undue disturbance of existing business conditions, and at 
such seasons of the year when funds are most plentiful after the 
normal movements of the crops. 

The provisions for the daily current redemption of bank currency 
through clearing houses and at numerous redemption agencies would 
soon establish the fact that at certain seasons of the year our cur- 
rency is too redundant, while the power to issue over $300,000,000 
additional currency if needed would provide all the elasticity con- 
sistent with .safety and business needs. 

Against any cry of contraction by reason of the accumulation of 
actual cash reserve by the banks is the following illustration of the 
working of a similar case: 

At one time the trust companies of New York City against 
$1,000,000,000 of deposits held only 2 per cent actual cash reserve. 
These trust companies were compelled by new legislation gradually 
to increase this from 2 per cent to 15 per cent, and the change was 
effected without financial dislocation. 

As to security of currency not covered by deposit of United States 
bonds — viz, equal to 50 per cent of capital — this would be safely 
guaranteed by the first lien upon assets and the 5 per cent redemp- 
tion fund contributed by all national banks reenforced by the taxing 
power to replenish this fund when depleted. Canadian bank cur- 
rency has no bond security whatsoever, yet for over 20 years, though 
several banks have failed, a similar fund has not been resorted to for 
a dollar, the assets being always sufficient to liquidate the outstand- 
ing circulation. 

The provision as to redemption of all 2 per cent bonds now held by 
the banks in excess of 50 per cent of their capital is absolutely a 
necessary step toward providing an automatically elastic currency, 
apart from the necessity for maintaining the credit of the Govern- 
ment in the matter of these bonds, and doing justice to the banks, 
which were induced by the Government to invest in them. 

The change in method of compensation of examiners wUl be gen- 
erally admitted to be one necessary to remedy a glaring defect in the 
national banking system. It will place in the hands of the Govern- 
ment the power to exercise the most thorough supervision of the 
banks it creates, which from the lack of this power is now largely 
handed over to the clearing houses. 

The payment of the increased cost of examinations will be made 
from additional taxation on bank circulation, instead of by direct 
assessment on the banks, as at present, for the totally inadequate 
fees now paid for examinations, which in some cases are almost 
farcical as to efficiency. 

Geo. M. Coffin. 

February 14, 1913. 



suggestions kespecting pkoposed cukeency reeokm. 9 

Reasons for Suggested Amendments, 
lawful money reserve. 

Amendment No. 1 is proposed to require that no national bank 
shall keep on hand in its own possession lawful money reserve in 
excess of 15 pe-r cent of its deposits and circulation in excess of 50 pei 
cent of its capital stock for the following reason. When every 
national bank has in its own possession the whole amount of lawful 
money reserve the necessity for requiring national banks in central 
reserve and other reserve cities to hold a cash reserve equal to 25 per 
cent and 12^ per cent, respectively, against the reserves of other banks 
now deposited with them will cease, and there will be no valid or good 
reason for requiring these reserve city banks to maintain a reserve 
greater than 15 per cent, all in cash on hand. 

Such an amend nent on the basis of deposits held by national banks 
in central reserve cities on November 26, 1912, would release a sum 
in lawful money equal to $152,000,000 in addition to 25 per cent of 
the reserve deposits withdrawn and this would go far toward supply- 
ing the cash needed by the banks outside of central reserve cities to 
accumulate 15 per cent cash reserve in their own possession. 

While Canada imposes no legal requirements as to reserve against 
deposits, Canadieai banks as a rule maintain a reserve of about 15 per 
cent against their liabilities, of which about 8 per cent is cash on 
hand, and the remaining 7 per cent being balances due from other 
banks, very much as is the present custom of our ''country" national 
banks. 

RATIO DEPOSITS TO CAPITAL STOCK AND SURPLUS FUND. 

As capital stock is adopted as the limit for currency issue, it seems 
desirable to ^x a ratio between the deposits of a bank and its capital 
stock, so that as a bank's liabilities to depositors and note holders 
increase with the growth of its business it shall be obligatory upon 
the bank to increase its capital stock so as to maintain a certain ratio. 
And as a bank's '^ surplus fund" represents capitalized profits, the 
combined sum of capital stock and surplus fund may be made the 
basis for this ratio. 

Capital stock and surplus really constitute a guarantee fund upon 
which depositors and note holders must rely to protect them from 
loss in case of shrinkage id. value of a bank's assets through bad invest- 
ments or otherwise. Further than this, if capital stock is the meas- 
ure of a bank's capacity for issuing circulation against its assets, this 
measure should keep pace with a bank's expandmg business. And 
this is a defect in the Canadian system, because bank managers prefer 
to accumulate earnings in surplus or reserve rather than to increase 
capital stock, which is the limit of their regular currency issues. 

On November 26, 1912, the ratio of capital stock and surplus fund 
combined to ''net deposits" was, for all the national banks, about 
as 1 to 4. For central reserve cities the ratio was 1 to 4.3. For other 
reserve cities the ratio was 1 to 4.3. For country banks the ratio was 
1 to 3.75. These are all averages, some banks holding a smaller and 
some a greater ratio of deposits. The more successful banks held 
probably deposits equal to five times or six times the amount of capi- 



10 



SUGGESTIONS EESPECTIl^G PROPOSED OUEEENCY EEFOEM. 



tal and surplus, and either of these ratios might be adopted as the 
limit to which capital stock should be increased to keep safe pace 
with increasing business. 

LIMIT TO NATIONAL BANK's INDEBTEDNESS. 

Section 5202 permits a national bank to incur indebtedness for 
money borrowed in various ways up to the limit of its capital stock, 
and among the exceptions named exempts '^ notes of circulation," 
which are not considered as borrowed money, doubtless because they 
are now fully secured by United States bonds. If a national bank is 
permitted to issue notes not so secured, such insecured issue should 
be regarded as money borrowed from the holders of the notes while 
outstanding. 

Geo. M. Coffin. 

March 14, 1913. 

Bills of Exchange and Commercial or Business Paper. 

In the Aldrich plan much is said about the lack of a market in the 
United States for the above-named negotiable paper. If this con- 
tention is true, it is the outgrowth of banking practice in dealing 
with accommodations granted to the great industrial combinations 
which have been evolved during the past 12 years. 

Under this practice accommodations have been granted to these 
corporations on their single-name paper instead of discounting the 
business paper of their customers with the indorsement or acceptance 
of the corporations. 

The growth of this practice is reflected in the figures furnished by 
comptroller's reports showing the ^^classification of loans and dis- 
counts held by national banks." (See p. 4, report 1910, and p. 7, 
report 1912.) 

The following table exhibits the increase and decrease, respectively, 
in ''single-name" paper and ''two-name" paper, respectively, com- 
paring 1901 with 1912, expressed in percentage of total loans and 
discounts held at these dates: 



Septem- 
ber, 1901. 



June, 
1912. 



Increase 
(+), de- 
crease 



Single-name paper. 
Two-name paper . . 



Per cent. 
15.5 
36 



Per cent. 
20 
33.1 



Per cent. 
-f4.5 
-2.9 



The percentage of single name increased by 4.5 per cent, while that 
of two name decreased by 2.9 per cent. 

The development of this branch of business is a matter entirely 
within the power and discretion of the national banks. For under 
the provision of section 5200, which restricts the amount which may 
be loaned to any party (termed "money borrowed") to 10 per cent 
of capital and surplus combined, the power is sf)ecific ally granted to 
discount without limit "bills of exchange drawn in good faith against 



SUGGESTIONS EESPECTING PROPOSED CUEEEXCY KEFOEM. 11 

actually existing values" and ''commercial or business paper actually 
owned by the person negotiating same." 

And while section 5200 thus grants the power to discount such 
paper without limit section 5202 grants the power to rediscount it or 
borrow money in other ways up to the limit of a bank's capital stock. 

If this power to discount and rediscount such negotiable paper 
within lawful limits is not exercised to its full extent, the fault is 
with present bankmg practice and not with existing law, and any 
means which could be taken to induce or compel a wider exercise of 
the power of national banks would redound to the general advantage 
of the business of the country as well as that of the banks, for all 
bankiQg experience shows that in time of financial stress good two- 
name paper having short periods to run to maturity is the most 
convertible asset a bank can possess. 

For while the market value of stocks and bonds held as collateral 
invariably shrinks in times of panic or depression, good two-name 
paper is always convertible at face value. 

If the power to issue currency partly against assets other than 
United States bonds is granted under any plan for currency reform 
it would be well to couple it with a limitation of the amount any 
national bank may invest in single-name paper or in paper secured 
by collateral, either on demand or time, to a certain fixed ratio of 
the bank's total loans and discounts. 

In this connection, as well known, the great Bank of France is 
corapelled by law to discount bills for as small an amount as $1, 
while short-time commercial paper is the convertible asset against 
which German and Scotch banks are permitted to issue currency. 

Geo. M. Coffin. 

March 14, 1913. 

A Financial Treatise Exposing the Fallacy of Issuing Govern- 
ment Bonds. 

Oklahoma City, Okla., March 13, 1913. 

His Excellency the President, Woodrow Wilson, and Members of his 
Cabinet, the Members of the United States Senate and House of 
Representatives. 

Sirs : In wishing you to take note of my post-office currency bonds, 
a copy of which please find inclosed, I begin by stating that I am a 
member of the National Citizens' League, and at one time last year 
endeavored to make a date for an address before its board of direc- 
tors, but I presume as I was not a financier of national repute I failed 
to secure a recognition. 

Now, the ideas which I herewith present may not occur to you as 
progressive, but I assure you I have made this great question a study 
of many years and I hope you will give the plan at least a kindly 
consideration, and when the Congress will have passed a law prohib- 
iting depositors' checks to pass as a medium of exchange outside and 
away from the tellers' windows in every banking institution through- 
out the land, you will then certainly recognize the importance of 
issuing, in vast amounts, either these ''currency bonds" or else some- 
thing similar thereto. Then your Government can fill the udder of 



12 SUGGESTIONS KESPECTING PEOPOSED CUKEENCY EEFOEM. 

a financial cow whose teats are now dry and whose calf has long 
since died of starvation. 

Indeed, is it not now conceded that, previous and up to the year of 
1907, the country banks of the Nation were doing the greatest 
volume of their business on a basis of worthless checks instead of a 
currency based upon gold? Isn't drawing '^checks of exchange'' 
upon empty vaults a kind of ^^dry farming," and indeed there never 
could have been a '^fatted calf" if the cow's udder and teats had not 
responded to the necessity of want. 

And now by allowing the faulty system of personal and uncertified 
checks to represent a cash deposit in empty vaults, has it not inflated 
the value of very nearly every commodity to such a high level that 
there should now be at least $60 to $100 per capita in the country to 
sustain its strong commercial supremacy among the nations of the 
earth? Those nations whose greatest number of inhabitants that 
can neither read nor write, and who do a retail business on either a 
fractional paper currency or subsidized coins, have had less financial 
panics than those who use a system of checks. 

Gold doUars are the shekels of a modern commerce; therefore, 
gather them into the Nation's Treasury and in time only pay them 
out for the redemption of the currency bonds that the Government 
will pay on its current expenses from year to year, and then under 
this system the Government will become an active and aggressive 
competitor to the sharks who not only create but re-create a condition 
that brings about these various financial disasters, and in the hoarding 
of their immense amount of doUars and in their unlawful restraint of 
trade your Government will then be able, by its free and liberal use 
of this ^'untaxable currency," to drive these insane and erring men 
with their immense fortunes back into commercial pursuits. 

The many millions of dollars that this Government is spending 
annually for war material and ^' great battleships" could be put to a 
much more profitable use by expending a like amount on an army of 
expert miners exploiting gold-mining properties. Indeed, have your 
Government get the gold and hold it; its ^^ silent power" is much 
greater and of more force than all the big guns that man all the '^big 
battleships" of every nation upon the earth. 

Therefore, make the '^ currency bonds" the people's money, and 
pay them out to the employees of your Government that all men 
may labor, that they may feed and clothe and shelter their families 
who are so much in need of the necessities of life. 

With the kindest regards, and a most faithful hope in the imminent 
success of your administration, I am, sirs. 

Sincerely, yours, D. C. Pryor. 

A Prelude to a Preface of Post-Office Currency Bonds. 

[By D. C. Pryor, of Oklahoma City, Okla.] 

In the study of finance and the economy of nations we should first 
learn that a currency as a medium of exchange should only reflect 
the price or value of a commodity or thing that may be for bargain 
or for sale. Therefore a currency should never be effected or changed 
in its material worth in any manner or for any purpose whatsoever. 
And to create a commercial '^ corner" upon this medium of traffic is 
an outrage and a shame upon the face of a Christian civilization. 



SUGGESTIONS KESPECTING PKOPOSED CUEEENCY EEFOEM. 13 

If gold alone should be the unit or base from wbicb all currency 
should derive its source it should not be considered as a '^medium of 
exchange," for in my opinion I believe that the supply and demand of 
commercial commodities should alone regulate the prices thereof; nor 
should gold have a circulating power, but should be accepted by every 
Christian nation as the measure of all wealth. I have, therefore, in 
my system of finance, accepted gold as a unit upon which to place the 
value of all commodities at a fineness of 0.999; therefore, notes issued 
direct from the Government for its current or annual expenses with 
a small premium upon its face is by far a safer medium of trade than 
any other substance or form that can at this time be had. 

And again, in establishing this system of currency I believe it 
should become not unlike a twig, which must first take root in order 
that it may become as strong as a monarch of the forest, that it may 
at some future time shelter and protect from the rigor of the severest 
clime the unfortunate children of men. If money has in all the ages 
proven to be a good thing, then is it not by far the best to have too 
much than to have too little ? Or is it not much easier to set aside or 
destroy more of that which is good than to labor at a critical moment 
to recreate a thing of which the whole world is in so much need ? 

The gods of finance, in their greed, are not at all unlike the wife of 
Sampson, who, when she had shorn that righteous man of all his 
strength and he had become as a little child, in mockery of his sad 
misfortune, she cried aloud, ''The Philistines be upon thee, Sampson." 
Then is it not best to have at all times the great arm of a quantitive 
and strong currency, with its locks yet unshorn, to be at all times 
ready to fling back and destroy the Philistine panics that the good 
people of every nation may rest their tired limbs and wearied bodies 
beneath the shades of the industries of a country, reclaimed from the 
biting teeth of the monied sharks ? 

Should it not be the purpose of every just government to at all 
times be vigilant and watch over and care for its humbler citizens, by 
making their burdens lighter each day as they wend their way along 
the tortuous avenues of life ? 

WHhout the farming implements which are now so universally used 
upon every farm the white race of man would soon drift back to the 
state of a savage and exist only upon the wild meats and the berries 
and nuts of the jungle and streams, becoming so decimated in time 
as to forever disappear from the face of the earth. 

And were it not for the innumerable mechanical devices, factories, 
and workshops in the cities upon the earth, the fairest, the most 
elegant and refined ladies of the day could only clothe themselves 
with the leaves of the trees and the skins of the wild beats of the field. 

Andrew Jackson it was who said, ''To the victor belong the spoils." 
Then he who fells the forest and makes the earth bleed with his labor 
should have at least a reasonable compensation for the hard blows he 
has made in his masterful effort at feeding the whole world. 

And, again, he who toils at the bench, and he who volcanizes the 
metals of the earth, and all the men and all the women and children 
in every sweatshop should also be considered and not be ruthlessly 
robbed by an interest-grabbing tyranny that must sooner or later, 
unless it is ceased, destroy every vestige of a Christian civilization. 
Indeed the races of man were never drones, and if they have not 



14 SUGGESTIONS EESPECTING PROPOSED CUREENCY REFOEM. 

employment it is their Government and not themselves that is at 
fault. 

Every student of finances should assist his Government in redeem- 
ing its bonded indebtedness and at the same time endeavor to 
increase its volume of currency to sustain a greater commercial 
interest throughout the land. And, again, he should make every 
effort to have such mining laws enacted as would relieve this industry 
of all manner of taxation, and have your Nation's Congress to give 
a premium to the miners on gold as it is torn from the bosom- of the 
earth and not to the sharks who are destroying every vital industry 
of the land. 

Advocate a paper currency that should bear a small premium, 
payable in gold upon its face, and not to exceed more than a wearing 
and exhaustive waste, and see to it that there can never be a double 
tax on any commodity or a tax on a legal-tender dollar for any 
purpose whatsoever. 

And now, in this appeal to you and to the Congress of the United 
States, I ask that you pass a financial measure, something after the 
manner of the one I am endeavoring to introduce, and if it becomes a 
law and is sustained by your munificent Government, then in the 
after-a-while, when the curtain of time shall have closed its mantle 
about the rostrum of the twentieth century, history will accede to 
your masterful and progressive courage an ovation that must needs 
vibrate and reecho down into the ages. 

Herewith I present the following cogent and logical reasons why 
these post-office currency bonds should be issued: 

1. A post-office bond carries a premium instead of an interest and 
the premium is not due until the bond is paid. 

2. The premium is two-tenths of 1 per cent, amounting to only 
2 cents on $1 in 10 years, whereas the interest for the same length of 
time on $1 in a Government bond is something like 48 cents. 

3. It is paid by the Government direct to its employees every three 
months during the year and is at once assimilated in the avenues of 
trade. 

4. The premium is so small that it will not be hoarded. 

5. It circulates without being assessed or taxed. 

6. There will be no need of ever again issuing Government bonds. 

7. It will increase the gold reserve and in time pay off the Nation's 
bonded indebtedness. 

8. It will raise the mortgage on the farm and lessen the rate of 
interest to the tillers of the soil. 

9. It will give the Nation the power to become the arbiter of peace 
and of war, because it will in time have the greatest gold reserve in 
all the world. 

10. As a currency it will cost- the Government not a cent when 
issued and the Government will have 10 years in which to secure the 
gold to redeem the bonds. 

11. It will destroy the force of usury and will cheapen the rate 
of interest by the rapidity of its circulation and will not become 
inflative. 

12. Because, should it become necessary to intervene in any of 
the Latin-American countries, this form of currency can be used to 
bring about a speedy and stable government without a bloody and 
relentless warfare. 



SUGGESTIONS KESPECTING PEOPOSED CUEKE:N^CY EEEOKM. 15 

13. Because the Post Office Department of the Government 
expended something over $275,000,000 in 1912, and with the parcel 
post added thereto and the wide range of territory which it will 
cover these post-office currency bonds will be of an immense value 
in perfecting a more desirable service than it may now have. 

N. B. — ^The hundreds of millions of responsive gold dollars in the 
United States Treasury do not belong to the Government, but to 
the men or corporations who hold the certificates thereon. Notes or 
currency numerically numbered above $20 should not be considered 
by the Government as circulating medium, for such notes are seldom 
needed, and only m banks and clearing houses. 

FACE OF THE CURRENCY BOND. 

This is to certify that this bond can be redeemed in gold coin at the Treasury of the 
United States of America in Washington, D. C, on or after March 31, 1920, with 
2 cents added thereto as a premium thereon. 

This bond is nonassessable and can not be taxed for any purpose whatsoever. 

REVERSE SIDE OF THE CURRENCY BOND. 

This is $1 post-office currency bond and shall be legal tender for any and all debts, 
both public and private, except the dues and interest on Government bonds, cus- 
tomhouse duties, and internal revenue anywhere within the confines of the Govern- 
ment and its dependencies. 

In bundles of not less than 100 to a package on or after March 31, 1920. 

This bond is nonassessable and can not be taxed for any purpose whatsoever. 



Ten-Year Post-Office Currency Bonds. 

Herewith is presented a tabulated form showing a conservation of interest on Gov- 
ernment bonds by an issue of post-office currency bonds. 

EXHIBIT A. 

Mar. 31, 1911, to Mar. 31, 1920. 

Government bonds $100, 000, 000 

Interest on 4 per cent Government bonds, compounded for 10 years. . . 48, 024, 428 

148,024,428 

EXHIBIT B. 

Mar. 31, 1911, to Mar. 31, 1920. 

Post-office currency bonds $100, 000, 000 

2 cents premium on the dollar for 10 years 2, 000, 000 

102, 000, 000 

EXHIBIT C. 

Interest on Government bonds and premium on post-office bonds 
deduced: 

Government bonds and principal $100, 000, 000 

Interest 48, 000, 000 

148, 000, 000 

Post-office currency bonds 100, 000, 000 

Premium 2, 000, 000 

102, 000, 000 

Conservation in favor of premium bonds 148, 024, 428 

102, 000, 000 

46, 024, 428 
2736—13 2 . 



16 SUGGESTIONS RESPECTING PEOPOSED CUEEENCY EEFOEM. 

TEN-YEAR POST-OFFICE CURRENCY BOND. 

Subdivided post-office currency bonds in quantitative dollar divisions. 

1 130, 000, 000 

II 25, 000, 000 

III 20, 000, 000 

IV 15, 000, 000 

V 10, 000, 000 

100, 000, 000 



Washington, Pa., March 14, 1913. 
Hon. Senator Owen, 

Washington, D. C. 

Dear Sir: The announcement that you will be chairman of 
Currency inspires us to beg of you to use your good offices to bring 
about the absolute control of the finances of this country by the 
Federal Government, thus making a uniform interest in every State 
of the Union of 4 per cent. 

The prevailing interest in Pennsylvania, as well as in many other 
States, is 6 per cent, and even at this rate of interest real estate pur- 
chased with all borrowed money can never be paid for, no matter 
how productive, and it matters not whether it be town property or a 
farm, and notwithstanding this there are States in the Union where 
as high as 20 per cent can be charged under contract. 

Real estate being the basis of all wealth, consequently interest on 
money sho-uld not be so high as to preclude the possibility of pur- 
chasing it with the full amount of the purchase money borrowed, but 
farms bought to-day and only half of the money borrowed can never 
be paid for unless a mineral of some kind underlies the purchase. 

Money at the present time is being put to a use never intended. It 
is the vehicle on which commerce should be carried, but it is used to 
obstruct commerce. 

In our judgment money should be 4 per cent in every State in the 
Union, and at this rate of interest bankers would make more money 
than they are making at the present time, for it is much easier to 
collect 4 per cent than 6. 

The Government should purchase all the gold and keep it, issuing 
certificates and charging a premium for the gold when certificates 
were presented. This would tend to stop the carrying of our gold into 
foreign countries and remaining there, as it nearly always does. The 
high rate of interest on money is the cause of every busmess depres- 
sion that occurs in the country, because development in remote parts 
of the country, where money is high and scarce, has to wait till the 
man with the money bags arrives, and then development is carried 
on with an unnatural rush, hence the scarcity and the ovei^produc- 
tion that we see. 

And then again we hear that old story about sending money West 
to move the crops. Why, there should be plenty of money all over 
the country, one place just same as another. There is never any 
scarcity of postage stamps, and why ? Because the Federal Govern- 
ment throws its safeguard around the stamps, and allows a lot of 
schemers to manipulate our currency. 

Very truly, yours, Patrick Yorke, 

Manager. 



SUGGESTIONS EESPECTING PKOPOSED CUKEENCY KEFOEM. 17 

Denver, Colo., March 17, 1913. 
Senator Owen, 

CJiairman of Currency and BanMng Comn^ittee, 

Washington, D. C. 

Dear Sir: Knowing that you are one of the most progressive Mem- 
bers in Congress, I take the liberty of writing you and sending you a 
copy of the land-currency idea. This is something that ought to 
interest all who wish to see laws passed that will benefit the whole 
people instead of the trusts and money kings. 

It is a comical situation, that our lawmakers are trying to fasten 
the blame on Morgan and the banks of the Nation, while the Govern- 
ment, through the lawmakers, has for 25 years helped to create this 
great trust by giving them the use of the people's money without cost, 
for them to loan to the wealth producers at high rates of interest, and 
when the loans are due and people are unable to pay or get extensions 
the property is confiscated, thereby making the rich richer and the 
poor poorer. 

Land and real estate is the only safe security in the world. It is 
the basis of all wealth; other countries realize this. This is the rea- 
son so many are emigrating to Canada, where the Government will 
supply the land and money to improve and buy stock, which gives the 
landless man a chance to get a home and takes him out of the power 
of the money trust. 

If we had a law whereby the landowner and the renters could bor- 
row money at 3 per cent per annum on 10 to 20 years, there would 
not be any more foreclosures of farms. The farmer would be able to 
buy stock and live comfortably while he was growing his crop. The 
money power will not approve of this plan any more than they do of 
other humane laws. The people want some attention along this line 
and must have it. They have served their masters long enough. 
Yours, very truly, 

P. Raymond, 
1639 Champa Street, Denver, Colo. 



McAlester, Okla., March 21, 1913. 
Hon. R. L. Owen, 

United States Senate, Washington, D. C. 

Dear Senator Owen: My attention has been called to certain 
features of the report of the Pujo committee which if enacted into 
law would be very disastrous to country banks. As you know, I 
have been for all reform measures which have been before the people 
in the last several years, but I do not believe that zeal should get 
away with discretion in these matters, and it seems to me that there 
is some danger of this at the present time. I have not the informa- 
tion to know whether there should be legislation necessary to restrain 
some of the operations of great city banks. All I know about is 
country banks. 

Among the recommendations is that a law should be enacted 
prohibiting officers borrowing from theh own banks. If this read 
active officers, I would heartily agree with it. For many years we 
have had such a rule in this bank. No one drawing a salary from the 
bank is permitted to borrow or be indebted to the bank in any way, 



18 SUGGESTIONS EESPECTING PEOPOSED CUREENCY EEFOEM. 

but officers includes directors. The directors of banks in small towns y 
as ours, represent the best business interests in the community, and 
to prohibit them from being borrowers of the banks would mean the 
elimiuation of the very men from the directorate of the country banks 
who are capable of giving strength to the institutions. 

Another provision is that banks can not charge on out-of-town 
collections. Why they should not be permitted to do so is past my 
comprehension. Any check which is collected out of town costs us 
something to collect, if it be no more than postage. It costs time to 
handle it. It iavolves a certaiu amount of risk on the part of the 
bank. Now, as a matter of fact, as a general proposition, we do not 
make charge on out-of-town checks, especially on those on which we 
can get prompt action and when deposited by customers of the bank. 
However, only a few days ago we had a check for some thousands of 
dollars on California. It took us nine days to collect the check, 
although we gave the customer credit for it at the time. He had the 
use of our money for nine days before we had anythiag to show for it. 
It certainly could not be urged that we were not entitled to a charge 
for this service. 

Another proposition is one which would prevent banks from con- 
solidating. I am at an utter loss to see any reason in this. Certainly 
if there are more banks in a community than that community can 
support, it is not only a good thing for the banks themselves, but a 
good thing for the community to reduce the number of banks by 
consolidating what is generally a weak bank, and one which might 
otherwise jeopardize depositors' money, with a strong bank. 

Another proposition requires banks to make public their assets 
other than names of borrowers. It seems to me that this would be 
very iniquitous. There are times when it might work irreparable 
injury to the bank. All banks at times have assets which for one 
cause or another might depreciate or become involved in some way 
that careful nursing will take care of. To publish these things would 
often do harm and would certainly do no one any good. As to the 
provision for making list of stockholders public, that I can see no 
objection to. 

I believe that I am right on this proposition and trust that you 
will at least give the matter consideration, and if you can agree with 
my conclusions, use your influence against any such legislation. 
Yours, sincerely, 

Frank Craig, 
President City National Bank of McAlester, OMa. 



Clarksburg, W. Va., March 21, 1913. 
Hon. KoBERT L. Owen, 

United States Senator, Washington, D. C. 
My Dear Senator: I am reading with very great interest your 
speech in the United States Senate of March 3, 1913, on the initiative 
and referendum, and I am also very much pleased to see that you 
have been selected by the steering committee of the Senate as chair- 
man of the Committee on Banking. And I hope that you may be 
able to get an opportunity to make a thorough investigation of the 
viciousness that has been used by ''big business," especially by the 



SUGGESTIONS EESPECTIN^G PKOPOSED CXJEEENCY EEFOEM. 19 

bankers. I am in receipt of a circular purporting to be a letter 
written by J. P. Morgan & Co. to Hon. A. J. Pujo, that in a great 
many of its paragraphs, especially on pages 16 and 17, appears to 
me to be direct affrontery. It contains 27 pages. If you have not 
received a copy of it I hope you will get one; and, if necessary, I will 
send 3^ou mine. 

For many years I think the officers of the national banks have 
undertaken to control the finances of this country, and have organ- 
ized the large insurance companies and made them conduits or pipes 
by which they draw the money in from the people through these 
sources as well as through having the country banks make the city 
banks their depositories in order to drain the country of money and 
have it concentrated where they can control it by trust companies 
and other manipulations of their own invention. 

And now since the Democratic Party has come into power and is 
starting to correct many of these evils, some of which have become 
chronic, I am of the opinion that the Wall Street financiers will make 
persistent and continued efforts to prevent the Government from 
interfering with their inordinate power. And I trust that you may 
lay a foundation with your committee that will make a rigid, search- 
ing investigation and that will go to the root of the evil. None of 
the congressional committees have as yet, that I have seen, reached 
the source or means and proceedings by which the 1907 panic was 
brought about. 

If I am correctly informed, for months before that panic there was 
a studied, careful, and systematic plan by the railroad companies 
and large banks by which they drained all the country of its cash 
and concentrated it in the large cities, especially New York. For 
example, out through West Virginia the depot agents were directed 
to have all freight and passenger transportation paid in cash (not 
checks), and the companies had that cash sent to their depository 
banks in the large cities — -would not permit it to be deposited in 
local banks as formerly — and then the railroad companies would pay 
all their labor and obligations in checks on central banks (not cash), 
which made a great drain from the country and country towns of 
the currency to the banks in the large cities, especially New York. 
And this, together with the bank reserves and other moneys of the 
country banks, being allowed to be kept at these large centers got the 
currency of the country concentrated in the banks of New York or 
directly under their control. The banks were full of money when 
the panic commenced and were full of money when it ceased, but 
the banks would not pay out the currency. They organized a mob, 
as it were, violated the law, and were subject to be closed and prose- 
cuted. Wh}^ was it not done? These facts ought to have been 
brought out before some of these investigating committees. 

I sincerely hope that you may get your committee so organized 
that you will be able to make an investigation that will reach the 
spot that caused the panic of 1907, and if in the future a panic is 
threatened that you will be able at once through a committee in- 
vestigation to definitely locate the source of such panic. 

Those who have been controlling the financial interest of this 
country care but very little for humanity or good government. I 
believe they will try to discredit this administration. They may not 
travel by the way of a bankers' money panic this time, but they will 



20 SUGGESTIONS EESPECTING PKOPOSED CUKEENCY KEFOKM. 

seek some way of retaliation or avenue of escape. They may attempt 
shutting down manufactories by withdrawing financial aid; they 
may cripple railroad transportation by the same or other methods; 
they may attempt it with a coal famine by extending their influence 
to the mining regions; they may attempt it through some foreign 
relations; but mark my words, there will be a vicious attack from 
some source, or an attempt to escape through some route. It will be 
industriously planned and doubly guarded. 

Now to be prepared. If you have the facilities, and I hope you 
have, but if you have not, that you will invent or procure the same, 
and have trusted men, wise and discreet, to watch all these avenues 
and others, and ascertain what is going on in all the centers of industry 
and transportation, and among the bankers, and where the loans 
are being placed, or called in, and from what section and through 
what channels the money is being withdrawn or furnished. And 
have sufficient information that you can within a short period, if 
necessary, locate any sinister movement by the money power to 
effect commercial relations or make stringent the money circulation^ 
or strangle the industries of our country. 

With sincerest wishes for your complete success as chairman of one 
of the most important, if not the most important, of the Senate com- 
mittees, I am. 

Most truly, yours, Millard F. Snider, * 

Attorney at Law. 



LETTER REFERRED TO COMMITTEE BY SENATOR CHAMBERLAIN. 

Albany, Oreg., March 25, 1913. 
Hon. Geo. E. Chamberlain, 

Washington, D. C. 

Dear Mr. Chamberlain: There seems to be an idea in certain 
localities that the business interests throughout the country are 
opposed to any action being taken on the part of Congress in reform- 
ing our present banking system. That is a mistaken conception as far 
as this community is concerned. That our present system is defective 
and incapable of meeting the demands of the present-day business 
conditions was fully demonstrated in the fall of 1907. With the 
resources that this country has there is absolutely no excuse for the 
monetary conditions to be such as they were in the fall of 1907 and as 
they are liable to be again during any crop-moving season. Most 
bankers fully realize this, and it is a terror to them by day and by 
night. Congress should do something at the earliest possible date to 
make it impossible for these conditions to return. Whether the 
Aldrich bill is the proper measure to enact it is not our province to say; 
but we feel quite certain that it is far superior to our present system. 
What we need is a more flexible currency system based on the con- 
vertible resources of our country. We feel quite certain that Con- 
gress is amply capable of handling the situation if only they set 
themselves about doing it. 

Very truly, yours, Alfred C. Schmitt, 

Vice President First National BanTc of Albany. 



SUGGESTIONS KESPECTING PKOPOSED CUEKENCY KEFOKM. 21 

Oklahoma City, Okla., March 25, 1913. 
Hon. Robert L. Owen, 

WasJiington, D. C. 

Dear Senator Owen: I notice you are to take charge of the bank- 
ing affairs of the country and work out the necessary reforms. Sena- 
tor, the greatest farce is the double-liabihty law, which appHes to the 
responsible man only or stockholder, while the fellow who goes in to 
defraud always arranges to evade the double liability by encumbering 
his stock and is never worth the double amount of his stock. 

I think every stockholder in a State or National bank should be 
prohibited from encumbering his stock in any way and should be 
required to put up good and sufficient bond for the double liability 
also. Both State and National laws are a farce as they stand and 
should be made to cover the purpose for which they are intended more 
effectually as trustees of the funds of the people. No stockholder 
should be allowed in any way to evade the double or even triple liabil- 
ity and should put up gilt-edge bond for the amount. 

Senator, write me what you think of this ; and can you get time to 
give me some suggestions ? 
Yours, very truly, 

R. J. Bond, 
Member of House of Representatives of OMalioma. 



Muskogee, Okla., Marcli 26, 1913. 
Hon. Robert L. Owen, 

United States Senate, Washington, B.C. 

My Dear Senator: I am in receipt of a letter from a committee 
from Brunswick, Ga., who are opposing the proposed legislation 
which has to do with a part of the Pujo committee report, which 
undertakes to amend the national banking law, as per the inclosed 
letters. 

I can see no serious objections to propositions 2 and 4. I don't 
think any officer has a right to borrow money from his own bank, 
and hope they will enact that into the law. Neither can I see any 
good reason why any bank should charge for remitting for collections 
of its own cash items, as the practice as now indulged in is a serious 
one in this State alone. We send an item to an interior bank; 
they not only hold the item their own good time before remitting, 
but charge an unreasonable fee for same. There is no more reason 
why a bank should discount its own paper than an individual should. 
If this practice is eradicated we all can know where we stand when 
we take an item for collection. 

With reference to item 1, with reference to banks not being allowed 
to consolidate, I hardly think the committee expected this propo- 
sition to carry. It seems to me too ridiculous on its face to be seri- 
ously considered. 

Proposition 3. I can see where no good could come from this 
clause, as what is everyone's business is no one's, consequently the 
wagging of the idler's tongue would do a great deal of damage. 

If you agree with me in this, I would be very glad to have you use 
your influence along the same line. 

With kindest personal regards, I am. 

Yours, truly, D. N. Fink, 

President Commercial National Banlc. 



22 SUGGESTIONS EESPECTING PROPOSED CUEEENCY EEFOEM. 

Tulsa, Okla., March 30,1913. 
Hon. Robert L. Owen, 

WasJiington, D. C. 

Dear Senator: I see that Oklahoma has been honored with the 
chairmanship of one of the most important committees of Congress, 
Banking and Currency, in the person of one of the Cherokee Nation's 
most illustrious sons. I am an Indian citizen of the same tribe, 
and am very proud of one of that nation so honored. I am taking 
the liberty of writing to you suggesting some of my ideas along the 
lines of currency and banking that I have worked out in my own 
mind. I have based them on sound economic principles, I hope, 
and trust that you may find in them something to help you in your 
work along these lines. 

I shall consider the question under three heads: 

(A) Money. 

(B) Currency and revenue. 

(C) Banking. 

Money is anything that has power in exchange. This includes 
gold, silver, currency, bank drafts, checks, etc. Bank drafts per- 
form many of the same functions as the first three forms of money, 
but, of course, is limited in its scope of usefulness. The same may 
may be said of all other things that pass in exchange. One con- 
clusion follows from this: The Government is not the sole maker 
of our money. This should not be the case, and it is my purpose 
to outline a system that would eUminate this feature of our present 
system. This, it seems to me, would be far preferable to our pres- 
ent system, which practically puts the control of our circulating 
medium in the control of groups of bankers. 

B. CURRENCY AND REVENUE. 

1. Repeal the law giving national banks power to issue currency 
and place this wholly within the service of the Government. 

2. Make all internal-revenue taxes payable in gold and silver coin, 
in proportions to be determined by law or by the Secretary of the 
Treasury. 

3. Give the Government power to make real estate loans, preferably 
farm loans, and confer the same power on national banks. 

The Government could not successfully take unto itself the exclu- 
sive issuing of currency without providing an adequate revenue, from 
which to redeem its paper at all times. The payment of all internal- 
revenue taxes in gold and silver coin would always give the necessary 
precious metal behind the currency system and would not force the 
Government into the market to buy the metal. Besides, internal 
revenue is not placed on necessaries, and the Government could 
well discriminate against them without working a hardship on the 
people. This currency, gold and silver, could be put out on real 
estate loans at, say, 6 per cent, and would prove a great source of reve- 
nue as well as confer a benefit on the people. Our western and 
southern and northern country needs cheap farm loans. Now it is 
6 per cent and from 2 to 3 per cent commission. The Government 
could even loan the money as low as 5 per cent and derive a great 
revenue from it. By giving the national banks power to loan money 
on real estate it would give them a safe investment for their surplus 
at home, and with the Government handling farm loans in time of 



SUGGESTIOXS EESPECTIXG PEOPOSED CUEEEXCY EEFOEM. 23 

stringency the banks could take these loans to the Government and 
get money on them. The regulations for loanmg money on real 
estate should be the same for the Government and the banks. This 
is a form of raising revenue that would not be felt, and at the same 
time would materially help the development of the country. The 
banks would be fiscal agents for all eastern as well as Government 
money. With a revenue like this money could not be cornered, 
because the local bankers could get all the money to loan needed by 
hypothecating their paper with the Government and gradually redeem- 
ing it as business conditions improved. This part of the system 
will be better appreciated by first looking over the third division and 
then considering the whole. 

C. BANKING. 

1. EstabUsh subtreasuries in each State, or groups of States, from 
which farm loans could be handled, and all business with the banks 
and the Government in that section could be transacted. 

2. Require all interstate exchange to be written in United States 
Treasury drafts, the payment of which is guaranteed by the Govern- 
ment. 

3. Require daily reports from each bank, writing such drafts to be 
made to the subtreasury of that division. 

Banks will be better and the more serve their real purpose when 
they are brought in closer touch with the regulating power — the 
Government. The Government has the right and power to make 
such regulations as to interstate commerce as it deems fit. What 
would be the effect of such a regulation ? The local bank would 
not be forced to carry accounts in the great business centers, and 
could keep all of its money at home. Each bank would stand on its 
own '^bottom" and not be dependent on the backing of some big 
institution in some city. Each bank's abihty to weather a storm 
would depend wholly on its relation to the Government, i. e., if its 
paper was good it could get all the money it wanted; if its reports 
showed up all right and the bank was in good order the bank would 
not want for backing. The daily reports should be something like 
the following: 

Deposits. 

Money on hand — currency, gold, silver. 

Loans — real estate, chattel loans, personal. 

Treasury drafts issued for the day. 

Treasury drafts cashed for the day. 

Or something along this line. These daily reports could be made 
easy and effective by supplying the banks with free postage, blanks, 
and enacting a law along with this system making the fiUng of a false 
report a felony, whether sworn to or not. State banks could avail 
themselves of this Treasury draft privilege by complying with what- 
ever requirement would be made and sending in the daily reports. 
The effect of this whole system would be to bring the banks and the 
Government into closer touch and relationship; m the end would 
resolve itseK into a guaranty system. Xow, the question will be 
asked, How is the Government to be protected in guaranteeing the 
payment of these Treasury drafts ? This could be done in one of 
two or three ways. The Government could require all bank stock to 
be kept unencumbered and hold a first lien on same to protect itself; 



24 SUGGESTIONS EESPECTING PEOPOSED CURKENCY REFOEM. 

or at the end of each day's business a bank could be required to remit 
in cash, currency, or coin to the nearest subtreasury to cover all 
exchanges written for the day; or the bank could be required to pur- 
chase and hold bonds to cover its draft business. I think that the 
plan to have the bank remit cash to cover drafts written for the day 
is the better plan. It would only be a matter of a few weeks when 
each bank's drafts would be covered by drafts cashed, and then all 
that would have to be remitted is the diiference between drafts 
written and drafts cashed, forwarding the drafts cashed to the 
subtreasury. 

Under this system each bank would be its own clearing house, any 
bank could write drafts payable in any part of the world because the 
payment of every draft written would be guaranteed by the Govern- 
ment. Each bank would be independent of every other bank so far 
as its financial ability is concerned. The Government could regulate 
the making of loans under the daily report system, and cut out specu- 
lative banking. The condition of each bank would be known to the 
Government at the end of each day's business. The making of these 
reports could be reduced to a system so that it would mean the filling 
out of a blank supplied by the Government. With numerous sub- 
treasuries, the work would be localized to suit the needs of each State 
or group of States. The largest as well as the smallest bank could be 
protected and the handling of the depositors' money be safeguarded. 
By requiring all banks to bond themselves with the Government to 
protect all deposits in excess of cash on hand, capital stock and liquid 
assets, we would have a perfect guarantee system. For this service in 
bonding the Government could charge a minimum fee, and by making 
the amount to be bonded equal to the dift'erence between the deposits, 
on the one hand, and the cash, capital stock, and liquid assets on the 
other, better and more conservative bankmg methods would be en- 
couraged. This would be true, because, when the bank applied for a 
bond its paper would have to pass a most careful examination and 
would have to come up to the standard set by the Government. By 
requiring these reports to be published each month, a bank's stand- 
ing with the Government would be known to all. On the whole, I 
believe that the system outlined in the foregoing pages would be 
practical. It would make the Government do what is now at- 
tempted to be done by individuals and groups of individuals. Its 
inception would not disturb business conditions, because it could be 
made to come in force gradually or give banks time to adjust them- 
selves to it by the time it became effective. It would mean the 
establishment of some subtreasuries, but this would not be a difficult 
task, since the expense would be taken care of by the new system in 
a very short time. No one but the banker ^^sot in his ways" can take 
offense at it. None but bankers who figure on backing a question- 
able undertaking or making risky loans can oppose it. In short it 
would meet with the approval of every careful conservative business 
man. 

Dear Senator, begging your pardon for thus presuming and intrud- 
ing and trusting that my effort will be of some measure of assistance 
to you in your work along this line, and thanking you for your time 
in reading these pages, I beg to remain, one of your constituents, and 
a citizen of Oklahoma. 

J. L. Harnage, 

Attorney at Low. 



suggestions kespecting peoposed cukeency eefoem. 25 

2 West One hundred and first Street, 

New YorJc, April 3, 1913. 
Hon. Robert L. Owen, 

TJnited States Senate, Washington, D. C. 
Dear Senator Owen : The country is to be congratulated in that 
you are chairman of the Banking and Currency Committee. Know- 
ing you as well as I do, I feel that you are desirous of securing a thor- 
oughgoing, fundamental settlement of these important matters and 
in a way that will appeal to and mn the enthusiastic support of the 
people and strengthen and unify the progressive movement. I believe 
I can help you greatly in this, and I am intensely desirous of getting 
into the work and making it a fight to the finish. 

I know the farmers, and they will support sound legislation if prop- 
erly presented to them. I have put the matter up to our people as 
strongly as I can, as you see by the inclosed letter to our president, 
Mr. Creasy, of Pennsylvania. But, unfortunately, farmers are close- 
fisted in providing financial support for campaigns, even for their 
own direct benefit. If I can get over the financial difficulty I can get 
a campaign under way in short order. I submit the matter to you, 
as you may feel it of sufficient importance to use your influence to 
secure the small amount needed from friends of thoroughgoing legis- 
lation. 

I have sent similar communications to Mr. Burleson, Postmaster 
General; Mr. Daniels, Secretary of the Navy; and Mr. Wilson, Secre- 
tary of Labor, all of whom know of my campaign work, and are, I 
believe, greatly interested in seeing this work undertaken. 
Sincerely, yours, 

Geo. p. Hampton, 
Wasliington Representative of Kentuchy, Colorado, Oregon, 

Washington, Pennsylvania, and Maine State Granges. 



2 West One hundred and first Street, 

New Yorlc, March 25, 1913. 
Hon. William T. Creasy, 

President Conference of Progressive State Granges, 

Catawissa, Pa. 

Dear Brother Creasy: Supplementing my report on our work 
during the Sixty-second Congress, and recommendations for legis- 
lative work during the Sixty- third Congress, I again urge that special 
attention be given to arousing the farmers to support thoroughgoing 
tariff and banking and currency legislation. 

I appreciate, of course, that the conference has already empowered 
me to take all necessary steps to organize educational campaigns in 
support of both these measures, but no provisions were made to 
supply the necessary funds except by voluntary contributions, and 
unless the progressive farm organizations and progressive farmers 
themselves supply at least the nucleus of these funds promptly I 
am powerless to do anything. The work, however, is so important 
to the success of the progressive movement that it should be immedi- 
ately undertaken; and if not undertaken because of lack of funds, I 
desire this letter to be my record that the responsibility for the failure 
is not on me. With $5,000 in hand for each purpose, or a guaranty 



26 SUGGESTIONS KESPECTING PEOPOSED CUEEENCY EEFOEM. 

that those amounts would be forthcoming to meet expenses as in- 
curred, I could have both lines of work organized and the educational 
campaigns under way within a week. 

The situation is serious — more serious, I feel, to the progressive- 
farmer movement than perhaps you and the executive council fully 
realize. Editorials and the reported statements of representative 
persons all indicate a general fear that thoroughgoing legislation on 
both these vitally important lines will, at the best, be exceedingly 
difficult because of opposition from the rural districts. The impres- 
sion is widespread that farmers will not go to the bottom of these 
great questions and will be easily excited to strenuous opposition to 
all thoroughgoing legislation by reactionary politicians and the agents 
of special -privilege interests. 

That reactionary influences will be aggressively active in such ways 
is certain, and I am convinced that unless the progressive farmers, 
with the progressive granges as the center around which to rally, are 
equally active, the effect will be to justify the opinion that farmers 
generally are reactionary and that progressives among them are in 
a hopeless minority. You and I know that the farmers are naturally 
progressive and can be aroused perhaps more easily than any other 
class to support genuinely progressive measures. But farmers, speak- 
ing nationally, are poorly organized, and as long as present conditions 
exist can only be aroused to united action in support of any measure 
by means of special educational campaigns for that particular pur- 
pose. That they will respond when organized in this way we have 
demonstrated again and again, whenever the matter has been of 
nation-wide interest and funds could be secured for the educational 
work. 

We agree fully that the most important work for the progressive 
granges now is to complete the work of uniting all farm organizations 
in a general federated body; but while that is in process I believe the 
urgency of the situation demands special work and special immediate 
efiort along the lines of the tariff and banking and currency. 

President Wilson's appeal in his soul-inspiring inaugural address 
should find a response in every progressive soul, and in no way can 
the progressive granges more eli'ectively respond than to throw all 
their abilities and energies into efforts to secure sound thoroughgoing 
tariff and banking and currency reform. 

Press dispatches report that the President and Mr. Underwood, the 
majority leader in the House, have agreed upon a policy of tariff 
reform. These dispatches show that the legislation proposed, in its 
most essential features, is squarely in line with grange demands, and 
therefore that progressive farm^ers should give their united support to 
assist in carrying it through. Without such help from the farmers 
there is danger that special privilege or high protection interests may 
force undesirable compromise amendments. 

Banking and currency legislative plans are not nearly so advanced 
as those affecting the tariff. The evidence is quite conclusive that 
neither in the dominant party nor among representative persons who 
have made banking and currency a special study and whose loyalty 
to pubhc welfare is beyond question is there agreement on currency 
reform. To bring about an agreement upon any sound thorough- 
going legislation under such circumstances is going to be a difficult 
matter. And to make things worse, there is the fear of the farmer 



SUGGESTIONS KESPECTING PKOPOSED CUKKENCY REFORM. 27 

opposition. This fear is tersely expressed by the Washington corre- 
spondent of the New York Evening Post, last Saturday issue. In a 
review of the possibilities of sound currency reform legislation he 
states : 

The greatest barrier in the wa}^ of intelligent and comprehensive fiscal legislation 
to-day is the blind prejudice existing in the agricultural States against any legisla- 
tion that will develop a truly national as opposed to a localized system of finance. 

That Wall Street influences will be exerted to arouse the farmers to 
defeat sound currency legislation and that the fear expressed by the 
Evenings Post's correspondent is quite general among Congressmen 
is certain. 

This, it seems to me, puts it squarely up to progressive farmers 
themselves to show they are masters of the situation. For a do- 
nothing policy the situation is dangerous in the extreme. But if the 
progressive State granges take an aggressive stand and handle the 
situation with the same thoroughness that characterized their han- 
dling of the parcel post, it opens up possibilities of service to the coun- 
try of inestimable value and will put the progressive farmers in the 
lead as harmonizers of present differences and as advocates of genuine 
banking and currency reform. Nothing else we could do would so 
win the unqualified approval of progressives generally or better show 
the worth and character of the progressive grange movement. I 
therefore urge with all earnestness that the opportunity be promptly 
seized and made the most of. 

The recommendations of State Master Kegley that the progressive 
granges unite with other representatives of the producing and the 
wage-earning classes to organize a commission or central bureau of 
their own to gather and disseminate sound information and secure 
desired legislation should, in my judgment, be immediately carried 
out both for tariff and banking and currency reform. This policy 
could be made quickly effective by the progressive granges uniting in 
signing and publishing an appeal for such cooperation, then pushing 
to secure from progressive farmers themselves the funds needed to 
start the work. 

Hoping that the recommendations herein made will meet your 
approval and that of the executive council, and in that event that 
orders will be speedily issued to put them into effect, I am, 
Sincerely and fraternally, 

Geo. p. Hampton. 



New York, April 4, 1913. 
Hon. Robert L. Owen, 

Chairman Banking and Currency Committee, 

United States Senate, Washington, D. C. 

My Dear Sir: I take the liberty, in behalf of our association, to 
inclose copies of our banking and currency leaflets Nos. 1 and 2. 

0ur association is now the largest commercial organization in this 
country, comprising within its membership very nearly all of the 
leading banking and commercial houses of the Nation. We have been 
deeply interested through the plain necessity for banking and cur- 
rency reform, and we have requested very earnestly that it be allowed 
upon the calendar of the extra session of Congress. 



28 SUGGESTIONS EESPECTING PEOPOSED CUEKENCY EEFOEM. 

We are proposing or indorsing no system, simply asking for the 
principles set forth in leaflet No. 2 and which we believe will make 
adequate and safe any new system and without which our present 
troubles and perils would surely be continued. 

We hope your own good offices in promoting this reform, and our 
association will be constantly at your service. 
Very truly, yours, 

J. H. Tregoe, 
Secretary- Treasurer National Association of Credit Men. 



Why the Existing Banking and Monetary System of the 
United States Retards Commerce and is a Menace to Every 
Business Man. 

The existing banking and monetary system of the United States 
retards commerce and is a menace to every business man — 

Because of its inflexible and immobile system of bank reserves, 
there can be no centralization of banking resources to meet an unusual 
pressure or strain, with the result, as experience proves, that during 
the past 60 years there have been recurring panics more or less 
violent, but always exacting from business a heavy toll. 

Because of this inflexibility and the very large number of our inde- 
pendent banking institutions, there is in panic periods a disposition 
upon the part of each to strengthen its own position by the hoarding 
01 funds, the contraction of loans, and the withdrawal of that support 
to legitimate business which is so necessary in these periods of quick 
and dangerous readjustment. 

Because it was solely an emergency measure, with no adequate 
provisions for elasticity of plan to provide for the ebb and flow in 
business and to meet successfully the strains upon the public confi- 
dence, such as always precede banking and business disturbances. 

Because currency secured by the public debt as represented by 
Government bonds is influenced more by the market value of the 
bonds than by the real needs of business and the currency require- 
ments to finance large crop movements or other emergencies. A 
currency limited by the public debt, controlled by the availability 
of the bonds securing it, may tend to inflation in periods of inactive 
business and limited currency demand and become dangerously in- 
adequate in periods of activity and strain, because no more currency 
can be issued than there are bonds upon the market available for 
currency-issue purposes. 

Because it makes no provision for a fixed and reliable market for 
discounting or rediscounting at reasonable rates, at all times, high- 
grade commercial paper, a vitally necessary condition in making it 
possible for business men to convert their sales into a marketable 
liquid asset in order legitimately to meet the necessities of a safely 
increasing business. 

Because it fails to legalize acceptances, which are a convenient and 
sound form of commercial paper, especially in the development of 
our international trading. 

Because it attracts the flow of banking funds into central reserve 
cities, where it is largely loaned by the banks on call upon fixed capital 



SUGGESTIONS RESPECTING PEOPOSED CURRENCY REFORM. 29 

or stock exchange securities, thus encouraging speculation, to the 
prejudice at important times of agriculture and commerce. 

Because there is no provision for the encouragement of international 
trade by the establishment in foreign cities of American banking 
houses upon an adequate and sound basis, or any provision whereby 
the Nation's stock of gold may be mobilized, increased, or protected 
when international balances may be against us. 

Because our financial history compares unfavorably with that of 
England and the commercial nations of the continent, not only in 
deficiency of methods provided for the protection of commercial 
credits, but in that our Government, through its Treasury system, 
withdraws funds from the ordinary channels of trade. Our Treasury 
and subtreasury system is not only unsound in theory, but unsafe 
and burdensome in practice, for by it lawful funds are withheld 
from then- natural uses, and in one administrative officer is alone 
reposed the discretion of placing these funds at the public's service 
or withholding them, no matter what the need or strain m.ay be. 

Because the system was strictly a war measure, with no provision 
or thought of fostering national commerce, and because of its inflexi- 
bility and other defects, the whole system has become a constant 
menace to every progressive business man. 



What Must be Provided by New Legislation if Our Banking 
AND Currency System is to be Made Adequate and Safe. 

Having proved in a previous leaflet serious defects in our existing 
"banking and currency" system and that business is constantly 
menaced because of these defects, it would be neither proper nor 
consistent after that conviction if we failed to enunciate certain 
fundamental constructive principles which experience demands 
should support a new banking and currency system. 

We deem it inopportune to propose a complete banking and cur- 
rency system to amend or replace the present one, but as this impor- 
tant question is having unusual public agitation, and clearness of 
thought and wise decision are so necessary to the business welfare, 
we do deem it opportune to emphasize that a new system to be 
adequate and safe must provide for flexibiUty in the use of bank 
reserves; elasticity of the currency; an open market for the discount 
and rediscount of sound commercial paper. 

FlexibiUty in the use of bank reserves, through central control, will 
make them available to support currency and credit in the relief of 
financial stress and for the needs of business at the time and at the 
place when and where the relief is needed. This will foster coopera- 
tion in banking with the beneficial results that invariably attend 
cooperation. This also will correct the tendency to hoard — a mis- 
conception of self-protection — which brings division of banking 
reserves and resources among our thousands of banking institutions 
at critical periods, a situation that aggravates rather than corrects 
the conditions which induce panics. 

The elasticity of the currency will permit the currency to act in 
accord with legitimate business demands, expanding when there are 
unusual demands, such as for seasonal crop movements and business 



30 SUGGESTIONS KESPECTING PEOPOSED CUKEENCY EEFOEM. 

emergencies, contracting when these unusual demands have been 
satisfied and there is a returning movement to normal conditions./ 

Elasticity will thus correct the rigidity of our present currency 
system which is now controlled more by the market for Government 
bonds than by currency demands, tending in normal periods to 
unnecessary inflation and to serious embarrassment and risk in those 
periods when the requirements for currency are large. 

An open discount and rediscount market. for sound commercial 
paper will foster honest business and adequately and safely provide 
for a sound commercial growth by permitting a form of liquid asset 
desirable for the investment of bank and individual funds and con- 
venient in commercial transactions. 

It will develop an international market for our sound commercial 
paper. 

It will correct our present system of a flow of banking funds iato 
central reserve cities to be largely invested, and necessarily so, infixed 
capital securities, such as stocks and bonds, resulting in the promotion 
of speculation and not commerce. 

No financial crisis of the last 50 years, with its waste, embarrass- 
ment, and suspension, but what might have been avoided had the 
three principles emphasized in this leaflet been in operation. 

The dispersion of reserves, the rigidity of the currency, and the 
absence of an open market for the sale of sound commercial paper, it 
is generally agreed, are largely the inducing causes for those un- 
necessary and expensive experiences called panics. 

If we are to avoid in the future the wastes and expenses of a bad 
banking system, then adequate banking and currency legislation 
must be the prompt work of Congress. 

A new system must provide the three principles urged in this 
leaflet if it is properly to support our commercial growth as a Nation, 
provide adequately for readjustment periods, and foster deserving 
business enterprise. 

The necessary legislation will be had when the business men of the 
Nation demand it, not before. 



Omaha, Nebr., April 8, 1913. 
Hon. RoBEET L. Owen, 

United States Senator, Washington, D. C. 

My Deae Senatoe: A few days ago, in reply to a request from 
Senator Hitchcock, I gave frankly my views upon the currency bill he 
has prepared and will introduce in the Senate. 

Unfortunately I could not approve of the proposed measure as I 
do not think it covers what is desired. 

I have now been engaged in the banking business for 50 years, 
and have taken some part in all the discussions during this period 
relating to banking and currency. I have strongly opposed the 
Aldrich measure in a number of public addresses and pamphlets. 
The questions involved are too abstruse and complicated to be dis- 
missed in a few words, and to make myself clear I can see no better 
way than to prepare a bill, notwithstanding the labor involved. But 
I felt that I could not ask Senator Hitchcock, for whom I entertain 
a great regard and would naturally select for the purpose, to present 



SUGGESTIONS KESPECTING PKOPOSED CURKENCY REFORM. 31 

my views when he has a bill covering his own ideas, which in many 
respects differ greatly from mine. I therefore wrote him that I 
would send direct to you as chairman of the Senate committee what 
I had to suggest. 

I have no pride or personal purpose whatever in the matter and. 
do not care who may receive credit for the service, if only a safe and 
sound measure in the public uiterest may be secured. If in the 
opinion of yourself and others there is merit in the plan, some way I 
am sure will be presented to make effective use of it. 

The Aldrich report represents much labor and investigation in 
many important details pertaining to the banking business, and most 
of these should go into any measure which may become a law. 

The bill I submit has nothing particularly novel about it. It sim- 
pl}^ holds fast to what we now have that has been tested by experience 
and only adds what is imperatively needed to prevent bank panics, 
and to give business the support it should receive from our banking 
system under all circumstances. 

I have followed the general liues of the Aldrich bOl, leaving out 
what is objectionable. In fact, the worduig of nearly every section 
is taken either from that proposition or the Revised Statutes. The 
plan provides for local banking associations — not local banks which 
would be merely a number of central banks, with perhaps the same 
objectionable features that would pertain to a single great bank. 
These associations would involve no more extensive business estab- 
lishments than now exist in clearing houses. They would be per- 
mitted, however, to loan to their members 50 per cent of the reserves 
deposited with them upon commercial paper as defined in the Aldrich 
plan, and may also issue circulation when they are wUling to pay 5 
per cent interest to the Government. 

I do hot pretend to believe that the plan as offered is perfect, or 
that it will suit everybody, but it is presented in such form that 
changes can be made exactly where needed to meet views that may 
be deemed better than mine. 

I need only add that I am a Democrat of the old school, but now, I 
think, in full accord with the progressives and desire earnestly that 
the present Democratic administration will give the country a sound 
financial measure as well as good legislation along other lines. 

Hoping I have not taken too great a liberty in sending this bill to 
you, I remain, 

Yours, truly, 

Henry W. Yates, 
Vice President Nebraska National BanTc of OmaJia, 



A BILL To incorporate national reserve associations of the United States, and for 

other purposes. 

Be it enacted hy the Senate and House of Representatives of the United 
States of America in Congress assembled, That national reserve asso- 
ciations of the United States be, and are hereby, created and estab- 
lished for a term of 50 years from the date of filing with the Comp- 
troller of the Currency a certificate of membership agreement as 
hereinafter provided. 

2736—13 3 



32 SUGGESTIONS EESPECTING PROPOSED CURRENCY REFORM. 

Section 1 . Each association shall have subscribing members duly 
authorized by their respective boards of directors to the number of 
not less than 10 and possessing not less than five millions of unim- 
paired capital. 

The membership may be increased from time to time as subscrib- 
ing banks increase their capital or as additional banks become sub- 
scribers, or may be decreased as subscribing banks reduce their 
capital or leave the association by liquidation or otherwise. 

The principal place of business of each association shall be located 
in the city or place to be chosen as hereinafter provided. 

Sec. 2. Upon duly making and filing with Comptroller of the 
Currency the certificate hereinafter required each national reserve 
association of the United States shall become a body corporate, and 
as such and by that name shall have power — 

First. To adopt and use a corporate seal. 

Second. To have succession for a period of 50 years from the date 
of said certificate. 

Third. To make all contracts necessary and proper to carry out 
the purposes of this act. 

Fourth. To sue and be sued, complain and defend in any court of 
law or equity as fully as natural persons. 

Fifth. To elect or appoint directors and officers in the manner 
hereinafter provided and define their duties. 

Sixth. To adopt by its board of directors by-laws not incon- 
sistent with this act, regulating the manner in which its property 
shall be transferred, its general business conducted, and the privileges 
granted to it by law exercised and enjoyed. The said by-laws to be 
subject to the approval of the Comptroller of the Currency. 

Seventh. To purchase, acquire, hold, and convey real estate as 
hereinafter provided. 

Eighth. To exercise by its board of directors or duly authorized 
committees, officers, or agents, subject to law, all the powers and 
privileges conferred upon national reserve associations by this act. 

Sec. 3. All national banks and all banks or trust companies char- 
tered by the laws of any State of the United States or of the District 
of Columbia complying with the requirements for membership in a 
national reserve association, hereinafter set forth, may become mem- 
bers in the reserve association within whose territory they may be 
included to the extent of their paid-in and unimpaired capital. 

The membership of a bank or trust company incorporated under 
the laws of any State or of the District of Columbia in a national 
reserve association shall be made subject to the following conditions: 

First. That (a) if a bank, it shall have a paid-in and unimpaired 
capital of not less than that required for a national bank in the same 
locality; and that (b) if a trust company, it shall have an unimpaired 
surplus of not less than 20 per cent of its capital, and if located in a 
place having a population of 6,000 inhabitants or less, shall have a 
paid-in and unimpaired capital of not less than $50,000; if located in 
a city having a population of more than 6,000 inhabitants and not 
more than 50,000 inhabitants, shall have a paid-in and unimpaired 
capital of not less than $100,000; if located in a city having a popu- 
lation of more than 50,000 inhabitants and not more than 200,000 
inhabitants, shall have a paid-in and unimpaired capital of not less 
than $200,000; if located in a city having a population of more than 



SUGGESTIONS BESPECTING PROPOSED CURRENCY REFORM. 33 

200,000 inhabitants and not more than 300,000 inhabitants, shall 
have a paid-in and unimpaired capital of not less than $300,000; if 
located in a city having a population of more than 300,000 inhabitants 
and not more than 400,000 inhabitants, shall have a paid-in and unim- 

E aired capital of not less than $400,000; and if located in a city 
aving a population of more than 400,000 inhabitants, shall have a 
paid-in and unimpaired capital of not less than $500,000. 

Second. That it shall have and agree to maintain against its de- 
mand deposits a reserve of like character and proportion to that 
required by law of a national bank in the same locality: Provided, 
however, That deposits which it may have with any national bank, 
State bank, or trust company in a city designated in the national 
banking laws as a reserve city or a central reserve city shall count 
as reserve in like manner and to the same extent as similar deposits 
of a national bank with national banks in such cities. 

Third. That it shall have and agree to maintain against other 
classes of deposits the percentages of reserve required by this act. 

Fourth. That it shall agree to submit to such examinations and to 
make such reports as are required by law and to comply with the 
requirements and conditions imposed by this act and regulations 
made in conformity therewith. 

The word "members," when used hereafter in this act, shall be 
understood to refer to such national banks, and banks or trust com- 
panies chartered by the laws of any State of the United States or of 
the District of Columbia, as shall comply with requirements for 
membership herein defined. 

Sec. 4. The Secretary of the Treasury, the Secretary of Agricul- 
ture, the Secretary of Commerce and Labor, and the Comptroller of 
the Currency are hereby designated a committee to effect the organi- 
zation of the National Reserve Associations, and the necessary ex- 
penses of said committee shall be payable out of the Treasury upon 
vouchers approved by the members of said committee, and the 
Treasury shall be reimbursed by the national reserve associations to 
the full amount paid out therefor. 

Sec. 5. Within 60 days after the passage of this act the organiza- 
tion committee shall forthwith proceed to divide the entire country 
as the various organizations are completed into districts which 
shall contain not less than 10 banks, with an aggregate capital of at 
least $5,000,000, for the purposes hereinafter prescribed: Provided, 
That the territory included in each district shall be contiguous and 
that in apportioning the territory due regard shall be had for the 
customary course of business and for the convenience of the banks 
forming the association: Provided, further. That in apportioning the 
district for the reserve associations every bank within the territory 
comprising a district shall be eligible for membership in the reserve 
association for that district : And provided further, That every sub- 
scribing bank shall become a member only of the reserve association 
of the territory in which it is situated. New districts may there- 
after be formed and the membership in all the districts may be 
readjusted from time to time by the Comptroller of the Currency 
when in his judgment the business justifies it. 

Sec. 6. So soon as a district is apportioned the committee shall 
give it an appropriate number or name of its chief city and shall 
forthwith provide a book for the signing of the membership agree- 



34 SUGGESTIONS EESPECTING PROPOSED CUREENCY REFORM. 

ment at the office of the clearing house association in said chief city 
if it should have such an association, and if there is none, then at 
some place it may name for the purpose. 

Before any bank shall be permitted to subscribe as a member it shall 
file with the Comptroller of the Currency a certified copy of resolu- 
tion adopted by its board of directors in which it shall accept the 
provisions of this act and the liabilities thereunder and shall author- 
ize an officer or duly appointed agent of said bank to sign for it the 
membership subscription. 

Sec. 7. Each reserve association shall have a board of directors 
of not more than 21 members and not less than 7, as may be speci- 
fied in its by-laws, who shall be elected at a meeting of the mem- 
bers of the association to be held at such date as the organization 
committee shall specify prior to its organization and thereafter 
annually on the first Tuesday of April in each year. 

Each member bank shall be represented at all meetings of the 
association by an agent duly authorized therefor by its board of 
directors, and at such meetings each member shall be entitled to 
one vote for each share of capital stock it may possess and has 
signed for in the membership agreement. The said directors first 
elected shall hold office until the first annual meeting following and 
thereafter for one year, or until their successors are elected and have 
qualified. Any vacancy in the board shall be filled by a vote of 
the remaining directors. 

If for any cause an election of directors is not made at the time 
appointed, the association shall not for that cause be dissolved, but 
an election may be held at a subsequent date, 30 days' previous 
notice having been given to its members. 

Each director when elected shall take an oath that he will, so far 
as the duty devolves upon him, diligently and honestly administer 
the affairs of such association and will not knowingly violate or 
willingly permit to be violated any of the provisions of this act. 
Such oath subscribed by the director making it and certified by the 
officer before whom it is taken shall immediately be transmitted to 
the Comptroller of the Currency and shall be ffied and preserved in 
his office. 

Sec. 8. The executive officers of each national reserve association 
shall consist of a president, two or more vice presidents, who shall 
be elected by the directors from their own number, and a manager 
appointed by the board of directors, who shall be secretary of the 
board, and such other officers and employees as may be provided in 
the by-laws. 

Sec. 9. Before an association shall be authorized to commence 
business its president or vice president, under authority from its 
board of directors, shall execute in duplicate a certificate setting 
forth the name or number of the association, the names of the banks 
composing it, together with the capital subscribed of each one, its 
principal place of business, its territorial limits, and the purposes 
for which it is organized. One copy of this certificate shall be filed 
with the Comptroller of the Currency and the other retained by the 
association. 

Sec. 10. Each national reserve association shall be exempt from 
local and State taxation, except in respect to taxes upon real estate. 



SUGGESTIONS RESPECTING PEOPOSED CURRENCY REFORM. 35 

Sec. 11. The directors of each ^^ national reserve association shall 
annually elect from their number an executive committee and such 
other committees as the by-laws may provide." 

''The executive committee shall consist of" such number of mem- 
bers as may be prescribed in the by-laws, and at least a majority of 
its members shall be taken from the banks of its chief city. 

The executive committee shall have all the authority which is 
vested in the board of directors, except such as may be specifically 
delegated by the board to other committees or to the executive 
officers, or such as may be specifically reserved or retained by the 
board.. 

Sec. 12. There shall be a board of examination elected annually by 
the board of directors of each association from among their number, 
excluding the members of the executive committee. It shall be the 
duty of this board to carefully examine the condition and the business 
of its national reserve association and to make a public statement of 
the result of such examination at least once a year. 

Sec. 13. The earnings of each national reserve association shall 
be disposed of in the following manner: 

After the payment of all expenses, the remaining earnings of each 
association shall be paid at such periods as the by-laws may prescribe 
to the members of the association maintaining credit balances in the 
proportion of their average credit balances for the period: Provided, 
however, That when circulating notes have been issued, the earnings 
upon the average amount in circulation less the special charges 
applicable to circulation shall be credited to a surplus fund which 
may from time to time be distributed by the board of directors among 
the members of the association in the proportion of their capital as 
represented in the association. 

Sec. 14. Nothing herein contained shall prevent or hinder the 
maintenance in cities of clearing-house associations as now exist or 
may hereafter be organized for the purpose of clearing checks and for 
such other purposes not inconsistent with this act. 

Sec. 15. All of the privileges and advantages of a national reserve 
association shall be equitably extended to every bank of any of the 
classes herein defined which shall become a member and shall other- 
wise conform to the requirements of this act: Provided, That a 
national reserve association may suspend a bank from the privileges 
of membership for refusal to comply with such requirements or for a 
failure for 30 days to maintain its reserves, or to make the reports 
required by law, or for misrepresentation in any report or examination 
as to its condition or as to the character or extent of its assets or 
liabilities. 

Sec. 16. The member banks shall be the only depositors in a reserve 
association. All domestic transactions of a national reserve associa- 
tion shall be confined to its members, with the exception of the pur- 
chase or sale of Government, State, county, city, or other municipal 
or other securities readily convertible into cash in all ordinary times. 

Sec. 17. Each national reserve association may rediscount for and 
with the indorsement of any member bank notes and bills of exchange 
arising out of commercial transactions; that is, notes and bills of 
exchange issued or drawn for agricultural, industrial, or commercial 
purposes, and not including notes or bills issued or drawn for the 
purpose of carrying stocks, bonds, or other investment securities. 



36 SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

Such notes and bills must have a maturity of not more than 28 
days. The amount so rediscounted shall at no time exceed the capital 
of the bank for which the rediscounts are made. The aggregate of 
such notes and bills bearing the signature or indorsement of any one 
person, company, firm, or corporation, rediscounted for any one bank, 
shall at no time exceed 10 per cent of the unimpaired capital and 
surplus of said bank. 

Sec. 18. Each national reserve association may discount the direct 
obligation of a member bank, running not longer than 28 days, 
provided it shall be fully secured by the pledge and deposit with it of 
satisfactory paper of the character and description specified in the 
preceding section, except that such collateral paper may run for a 
longer period than 28 days; but in no such case shall the amount 
exceed three-fourths of the actual value of the securities so pledged. 

Sec. 19. Each national reserve association shall have authority to 
fix its rates of discount from time to time, which shall be uniform to 
its member banks. 

Sec. 20. Each national reserve association may purchase, acquire, 
hold, and convey real estate for the followiQg purposes and for no 
other : 

First. Such as shall be necessary for the immediate accommodation 
in the transaction of its business. 

Second. Such as shall be mortgaged to it in good faith by way of 
security for debts previously contracted. 

Third. Such as shall be conveyed to it in satisfaction of debts 
previously contracted in the course of its dealings. 

Fourth. Such as it shall purchase at sales under judgments, de- 
crees, or mortgages held by said association or shall purchase to 
secure debts due to it. 

But no national reserve association shall hold the possession of any 
real estate under mortgage or the title and possession of any real 
estate purchased to secure any debts due to it for a longer period 
than five years. 

Sec. 21. All member banks must conform to the following require- 
ments as to reserves to be held against deposits of various classes, 
but the deposit balance of any member bank in its national reserve 
association may be counted as the whole or any part of its required 
reserve : 

First. On demand deposits: National banks in different localities 
shall maintain the same percentages of reserve against demand de- 
posits as is now required by law, and the same percentages of reserve 
against demand deposits shall be required of all other member banks 
in the same localities. 

Second. On time deposits: All time deposits and moneys held in 
trust, payable or maturing within 30 days, shall be subject to the 
same reserve requirements as demand deposits in the same locality. 
All time deposits and moneys held in trust, payable or maturing more 
than 30 days from date, shall be subject to the same reserve require- 
ments as demand deposits for the 30 days preceding their maturity, 
but no reserves shall be required therefor, except for this perioS. 
Such time deposits and mone^^s held in trust, payable only at a 
stated time, not less than 30 days from date of deposit, must be 
represented by certificates or instruments in writing and must not be 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 37 

allowed to be withdrawn before the time specified without 30 days' 
notice. 

Sec. 22. National banks may loan not more than 30 per cent of 
their time deposits, as herein defined, upon improved and unen- 
cumbered real estate, such loans not to exceed 50 per cent of the 
actual value of the property, which property shall be situated in the 
vicinity or in the territory directly tributary to the bank: Provided, 
That this privilege shall not be extended to banks acting as reserve 
agents for banks or trust companies. 

Sec. 23. All demand liabilities of a national reserve association 
shall be covered to the extent of 50 per cent by a reserve of gold 
(including foreign gold coin and gold bullion) or other money of the 
United States which the national banks are now authorized to hold 
as a part of their legal reserve: Provided, That whenever and so 
long as such reserve shall fall and remain below 50 per cent such 
national reserve association shall make no new loans or discounts or 
extend definitely the time of payment of any loans then made until 
its lawful money reserve is made good; except that when it issues 
circulating notes, as hereinafter provided, it may continue to loan 
and discount to the extent of the circulation issued. 

Sec. 24. Any national reserve association may at any time by its 
board of directors or executive committee call for the last examination 
report of any of its members or may request a special examination. 
If for any reason these reports can not be obtained from either the 
Comptroller of the Currency or the proper State authority when the 
member is a State corporation, then the association shall have the 
power to make an examination for itself, the expense for which shall 
be chargeable to the member under examination. 

Sec. 25. Upon the deposit with the Treasurer of the United States 
by a national reserve association of approved and satisfactory com- 
mercial paper of the character specified in sections 17 and 18 of this 
act the Comptroller of the Currency shall deliver circulating notes of 
the general character and description of the national-bank notes now 
issued to an amount not exceeding 75 per cent of the cash value of 
the paper deposited. 

The banks and the assets of all bank members of a national reserve 
association shall be jointly and severally liable to the United States 
for the redemption of such circulation, and to secure such liability 
the lien created by section 5230 of the Revised Statutes shall extend 
to and cover the assets of all bank members of such national reserve 
association. 

Sec. 26. All circulating notes of national reserve associations 
when presented to the Treasury for redemption shall be redeemed 
in lawful money of the United States. Every national reserve asso- 
ciation shall at all times keep and have on deposit in the Treasury 
of the United States in lawful money of the United States a sum equal 
to 5 per cent of its circulation, to be held and used for the redemption 
of such circulation. 

Sec. 27. Whenever a national reserve association shall fail to pre- 
serve or make good its redemption fund in the Treasury of the 
United States, as required in section 26 of this act, the Treasurer of 
the United States shall notify such association of the fact and if 
within fiYQi days after the reception of said notice the redemption 



B8 SUGGESTIONS EESPECTING PEOPOSED CUKKENCY REEOEM. 

fund is not made good, the Treasurer may at his discretion proceed 
to realize by sale or collection of the securities deposited the proceeds 
to be applied to the cancellation and retirement of the circulation 
issued by such association in the manner hereinafter provided for 
such retirement, and no more circulating notes shall be supplied to 
such association. 

Should there remain a deficit, the Secretary of the Treasury may 
take such steps as he may deem advisable to recover the same and 
protect the Government against any loss. 

Sec. 28. Any national reserve association desiring to withdraw 
any of its circulating notes may make such withdrawal at any time 
;in accordance with the provisions of section 9 of the act approved 
July 12, 1882, as the same was amended by section 10 of the act 
approved May 30, 1908. 

Sec. 29. The Comptroller of the Currency shall, under the direc- 
tion of the Secretary of the Treasury, cause plates and dies to be 
engraved in the best manner to guard against counterfeiting and 
fraudulent alterations and shall have priated therefrom and numbered 
such quantity of circulatiag notes in blank in the denominations 
which may be provided by law for national banking associations as 
may be required to supply the national reserve associations entitled to 
receive the same. 

Such notes shall state upon their face that they are secured by 
approved securities, certified by the written or engraved signatures 
of the Treasurer and Register and by the imprint of the seal of the 
Treasury. They shall also express upon their face the promise of 
the national reserve association receiving the same to pay on demand, 
attested by the signature of its president or vice president and its 
manager. 

The Comptroller of the Currency, acting under the direction of the 
Secretary of the Treasury, shall, as soon as practicable, cause to be 
prepared circulatiag notes in blank registered and countersigned as 
provided by law to an amount equal to 50 per cent of the aggregate 
capital stock represented ia each national reserve association, such 
notes to be deposited in the subtreasury of the United States nearest 
the place of business of each association and to be held for such asso- 
ciation subject to the order of the Comptroller of the Currency for 
their delivery as provided by law. 

Sec. 30. The circulating notes herein authorized to be issued to 
national reserve associations shall be subject to all the laws govern- 
ing the issue, redemption, and cancellation of national-bank notes. 

Sec. 31. The circulating notes of the national reserve associations 
shall be received at par in payment of all taxes, excises, and other 
dues to the United States, and for all salaries and other debts and 
demands owing by the United States to individuals, firms, corpora- 
tions, or associations, except obligations of the Government which 
are by their terms specifically payable in gold, and for all debts due 
from or by one bank or trust company to another, and for all obliga- 
tions due to any bank or trust company. 

Sec. 32. Each national reserve association shall pay to the Treas- 
urer of the United States in the months of January and July a tax 
at the rate of 2^ per cent each half year upon the average amount of 
its notes in circulation during that period. The taxes so received 
on circulating notes shall be paid into the Division of Redemption 



SUGGESTIONS EESPECTIXG PROPOSED CUREENCY REFORM. 39 

of the Treasury and credited and added to the reserve fund held for 
the redemption of United States and other notes. 

Sec. 33. The laws now existing or which may hereafter be enacted 
enforcing taxes on the ciixulation of national banks and providing 
penalty for failure to make return of the same shall be applicable in a 
like manner and to the same extent to the national reserve associa- 
tions. 

Sec. 34. Congress reserves the right to alter or amend the provi- 
sions of this act to take effect at the end of any decennial period 
from and after the organization of the national reserve associations. 

Sec. 35. All acts or parts of acts inconsistent with the provisions 
of this act are hereby repealed. 



Little Falls, N. Y., April I4, 1913. 
Hon. Robert L. Owen, 

United States Senator from OMaJioma, 

Ghairman Committee on BanJcing and Currency, 

Washington, D. C. 

My Dear Sir: I am a manufacturer and merchant of this city, 
and in 1900, on the death of Judge George A. Hardin, at the instance 
of the business community and of the directors, I was induced to 
succeed him as president of the National Herkimer County Bank. 

A very careful consideration of the situation pertaining to country 
banks — at least located in agricultural and manufacturing districts, 
and especially the experiences which w^e had passed through — caused 
me to write to the Treasurer of the United States and the Comptroller 
of the Currency and to Senator Aldrich the latter part of 1907 and 
early in 1908, which letters they very politely replied to, and as 
favorably as could be anticipated at that time in view of the Aldrich 
financial measure proposed, but which did not materialize. Very 
careful further consideration and conferences which I have held with 
prominent bankers both in country and city encourages me to address 
you at this time. 

The national-bank system it seems to me is all right with one 
important provision to be added. 

The investigations made by bank examiners, as they visit the 
banks, are now superficially conducted; the cash is counted, for 
instance, to see that the amount corresponds with the books; bills 
receivable are viseed to see that no one person or the firm with which 
he is connected has been accommodated to the extent of more than 
10 per cent of capital and surplus; the reserve agents are written to 
to see if the amount held by them corresponds with the report made 
by the country banks, and .^o on. 

I beg that the following may be done: That when the examiners 
visit the banks at stated intervals they should be competent men 
and paid sufficiently for each investigation, so that they can afford 
to take the time to do it properly. They should not only per- 
form the work as heretofore, but they should also call the directors 
together and in their presence examine all the bills receivable and 
other assets of the bank and satisfy themselves as to the quality of 
same; that they should also have the right to send for the makers of 
the paper, ascertaining from them as to their assets and liabilities, 



40 SUGGESTIONS EESPECTING PKOPOSED CUKKENCY EEFOKM. 

both direct and contingent if the directors can not fully and con- 
clusively satisfy the examiner regarding same. As a rule the officers 
and directors of the bank could satisfy the examiner as to the stand- 
ing of the party in the community, also as to the character of the 
business engaged in, the responsibility of the indorsers of paper, and 
the value of such collaterals to bills receivable as the bank may hold. 
Not only bUls receivable should be passed upon, but the other assets 
of the bank. A record should be made by the examiner of all bills 
receivable and other items, say of $2,500, or preferably $5,000 and 
Upward that unquestionably are good in his opinion, same to be 
recorded with the United States Treasurer or the comptroller, or with 
central bank at Washington if same is created, and then in time of 
stress the bank should have the right to send such securities as are 
actually good, whether in bills receivable or bonds and stock, together 
with the guaranty or indorsement of the bank, which would place 
behind it the capital and surplus and Undivided profits of the insti- 
tution, thus giving the Government absolute security, on to Wash- 
ington, either to a central bank or to the Treasurer or comptroller, 
and receive in return 90 per cent of the values of the securities in cur- 
rency, and mark, please, same to be simply loaned to the country 
banks, and the Government to charge the bank 4 per cent the first 
month, 5 per cent the second, 6 per cent the third, and 7 per cent the 
fourth month; the advancing rate of interest would make it an object 
for the bank to repay the loan as speedily as possible, and from two 
to four months would be ample time for the bank to make the turn 
and take care of the situation. No loan to run longer than four 
months. 

This plan does not call for any additional issue of circulating 
medium on the part of the bank itself and neither does it call for any 
additional outstanding obligations of the Government itself, for the 
loan would be but temporary. To this end Congress should enact a 
law providing for said emergency currency to be held on hand, and, 
if you please, same should be placed upon such reserve of coin as can 
not be called for. Further, on this point, it is inconceivable to 
believe that in any panic any more than 20 to 25 per cent of our 
greenbacks could find their way back to Washington, demanding, in 
return, specie. In the foreign countries the circulating medium is not 
limited to exactly the amount of specie on hand — quite otherwise. 
If money is hoarded in the country, owing to any panic, it would be 
the bank bills guaranteed by the Government; everybody knowing 
that same were perfectly good, they would not find their way to 
Washington, but independently of this speculative thought, so to 
speak, the fact that other civilized governments do not hesitate to 
provide a circulating medium many times in excess of the amount of 
specie held by them, is a legitimate reason why the United States 
should do the same, and without any danger, as I have endeavored 
to show, for the emergency currency would only be outstanding for 
a short time, when the Government would be repaid in currency by 
the borrowers. Further, if this was a law, there would be no runs on 
banks, and one of the most important considerations is the fact that 
the investigations on the part of the examiners being of the thorough 
character mdicated, if banks were found not pursuing a conservative, 
safe, legitimate business, a halt would be called and the bank saved 
by instituting reforms rather than is now the case, of waiting until 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 41 

from some outside source the Comptroller of the Currency is advised 
that the bank is not being legitimately conducted, when experts are 
then sent, with the result that the banks are placed into liquidation 
at so late a period that depositors and stockholders lose their money. 

Please note that the plan outlined would not call for much addi- 
tional machinery. The present system is all right with the addition 
I have indicated ; the interest that the Government would receive for 
the temporary loans would more than pay all the expense involved. 

Now, important, if in your opinion you should deem that it would 
be too complicated to have a record made of the quality of the assets 
of all national banks, then would it not answer to confine this plan, so 
far as the Government is concerned, to the greater city banks who are 
the reserve agents of the country banks; for instance, if in New York 
City there was held in the United States Treasury emergency cur- 
rency of the character I have outlined and in time of stress these city 
banks could go to the subtreasury with $1,000,000 of its securities of 
unquestionable value and receive in return 90 per cent of same in 
currency, they could then, in like manner, take care of their country 
correspondents, the country banks pledging to them good bills 
receivable or other assets of the bank of unquestionable value 
indorsed or guaranteed by the national bank, which would place 
behind the loan all of its capital and surplus and undivided profits. 
Perhaps this latter plan would be better, and I think that country 
banks would be willing to trust their correspondents in the cities who 
are their reserve agents to in turn take care of them. This would 
provide an elastic currency, and I submit that the Government 
would have for the loan which they might make directly to country 
banks (if the machinery is not too great, if that should be the plan 
adopted, or if limited to the city banks who are the reserve agents of 
the country banks, it would be infinitely better than the present law 
as it stands and decidedly better than any plan which I have seen 
outlined) the responsibility of the maker of the paper, the responsi- 
bility of the indorser of same or whatever collateral the bank had 
held in connection with the note, and also the entire capital, surplus, 
and undivided profits of the bank to fully secure the Government. 

With your permission I should be very happy to give you the 
detail of just what happened in connection with the National Herki- 
mer County Bank, of which I am president, during the panic of 1907, 
and just what had to be done in order to safely care for this bank 
not only, but the other banks up and down this valley, and what 
pertains to us pertains to other parts of our country as well. 

Again I emphasize the fact that the bank examiners should make 
a much more thorough examination as to the quality of the assets of 
the banks as they visit same from time to time. The investigations 
should be made before failures of the institutions instead of after- 
wards. 

Permit me to add, that without a single exception where I have 
conferred with high railroad officials as well as bank officials, and 
more particularly, with manufacturers and business men, as soon as 
they thoroughly understood this plan, they have indorsed it irre- 
spective of party affiliations. The Republican Party, however, has 
been so wedded to what has been advocated by its leaders that the 
present advent in power of the Democratic Party leads us to hope 
that some sensible and simple plan will be immediately devised for 



42 SUGGESTIONS KESPECTING PEOPOSED CUKKENCY KEFOKM. 

meeting the exigencies which likely are to arise, and which are anti- 
cipated by sound, thoughtful business concerns, must take place 
before a great while. 

The foregoing is most respectfully submitted, and begging you to 
give it consideration, I remain. 

Very respectfully, yours, D. H. Burrell, 

Manufacturer and Merchant. 



Atchison, April 15, 1913. 
Hon. Robert L. Owen, 

United States Senate, Washington, D. C. 

Dear Sir : While I have not the honor of a personal acquaintance 
with you, yet I presume to write to you in regard to a matter which 
I think will interest you and one which I think is worthy of your 
consideration. 

I notice in the newspapers much talk about a national guaranty 
plan for depositors of national banks. Some years ago when this 
guaranty proposition was agitating the people I submitted a plan to 
Hon. Charles N. Fowler, then chairman of the Banking Committee 
of the House, which received much favorable comment in the news- 
papers throughout the United States, and especially the N^w York 
City papers. Congressman Fowler, however, was wedded to other 
plans, and while in a measure approving the suggestion, he was fear- 
ful that it might interfere with his financial plans. 

Approximately the Government has now in the Public Treasury 
and on deposit in the various banks throughout the country upward 
of $500,000,000. Briefly, my plan is as follows : That all of this money 
be deposited in the national banks of the United States under such 
rules and regulations as may be deemed wise and proper, upon a basis 
of 2 per cent interest on daily balances, to be paid to the Treasurer of 
the IJnited States quarterly or at such other times as may be deter- 
mined, and the interest credited to a guaranty fund to be known as 
the national bank guaranty fund. In case of the failure of a national 
bank the same to be taken charge of through the appointment of a 
receiver or otherwise by the Comptroller of the Currency, and the 
depositors immediately paid off, and the assets of the bank adminis- 
tered through the receiver for the benefit, first, of the guaranty fund, 
to the extent that the same had been absorbed in payment of deposi- 
tors, and, second, the remainder, if any, to go to the stockholders. 
As the guaranty fund accumulates in the hands of the Treasurer, the 
same might be invested in liquid assets for the benefit of such fund 
and the accretions used to increase the amount thereof. 

If, say, $500,000,000 were so deposited on the basis of 2 per cent, 
it would produce annually $10,000,000, and in the course of a very 
short period of time, 5 or 10 years at the outside, a guaranty fund 
would be accumulated in such an amount as would absolutely pro- 
tect every depositor in the national banks and be a Gibraltar of 
strength which would be absolutely invincible. 

Another controlling benefit, in my mind, would be that all of this 
money so deposited in the banks would be placed in circulation and 
used in the handling of crops and other matters which demand the 
use of plenty of money upon cheap rates of interest. 



SUGGESTIONS EESPECTING PKOPOSED CUREENCY REFOKM. 43 

Of course this is the idea in substance, but it could be worked out 
in greater detail so as to simplify its operation in actual practice. 
The proposition is submitted to you for such consideration as you 
may deem necessary to give it. 

Yours, very truly, B. P. Waggener, 

Member of Senate, Kansas Legislature. 



Oklahoma City, Okla., 

A'pril 22, 1913. 
Senator Robert L. Owen, 

Washington, D. C. 

Dear Sir: I notice you are out for a currency reform, and, while I 
have not examined your ideas carefully on the matter, will say that 
currency reform is needed, and that this is really the vital question 
before the American Nation to-day, as affecting permanent prosperity 
to the people at large. 

It does not require a Solomon to understand that if the United 
States can make their 4 per cent bonds worth 135 cents or more on 
the dollar, and that these same bonds are now used as a basis "to 
secure national-bank currency," that our Uncle Sammy can make the 
circulating notes good and cut out the grafting bank system and our 
interest-bearing currency, which is working to divert untold millions 
annually into the pockets of a class who toil not, neither do they spin. 

The United States once had greenback Government money in cir- 
culation which was retired, stowed away, and interest-bearing mon'ey 
substituted. 

Let us suppose that a business man had, say, a hundred thousand 
dollars of money that was perfectly good and circulated in payment 
of all obligations, and that some one would persuade him to burn it 
up and borrow a hundred dollars at the current rate of interest with 
which to do business. 

Would not the court appoint a guardian for this individual ? Yet 
that is what some one has persuaded our Uncle Sammy to do, and 
now it is time that we have a guardian appointed for him. 

The people have appointed the guardians; now, will the guardians 
act? 

Let us trace a dollar through the present system in its course before 
it gets to the pockets of the workers or business people, the people 
who are keeping things going. 

First, Mr. Banker buys a Government bond which draws 4 per 
cent; then he deposits and gets currency issued back to him on it in 
the name of his bank to its face value, so that he is out nothing. 
Thus the people are perpetually paying 4 per cent on this money, 
whether Mr. Banker has it loaned out or locked up in his safe. Then 
.Mr. Banker says, '^Come on, boys, mth your good security; we have 
plenty of idle money; borrow it out and do business.'' The result is 
that when it gets into legitimate channels it has paid a toll of 12 to 
20 per cent, and that this toll is such a drain that it causes periodical 
panics and business depressions; times when all the money is con- 
centrated in the banks having come back in toil. It is ridiculous^ 
rotten, corrupt. 



44 SUGGESTIONS EESPECTING PROPOSED cijERENCY REFORM. 

When this Nation, or any other nation, has an ideal system of cur- 
rency, that system will be entirely a function of Government. The 
Government will not be taxed 4 per cent on all its money to ''make 
it good,'^ and the banks will be Government and managed by Gov- 
ernment experts, who will loan money to legitimate borrowers at a 
rate of interest that will keep business going without panics. 

I do not think that all can be accomplished at a stroke in this line, 
but I am glad to see a start made. 

The Postal Savings Department, as at present conducted, is a 
scheme of the banks to get more interest-bearing currency. 

People having such deposits receive circulars at regular intervals 
urging them to convert their deposits into 20-year Government bonds, 
the idea being that sooner or later they will want the cash and sell 
them over to the banks, thus perpetually increasing the public debt 
in the interests of the banking system. 

Currency is the hydra-headed monster that needs fixing, not legiti- 
mate business. 

I am sorry to see so much agitation against interests, no matter 
how large they may be, who are doing real business and employing 
the people. This is all wrong and they should be let alone. 

Tmkering with the tariff is also very dangerous, and Democratic 
papers are very inconsistent on this Une. The Oklahoman, for 
instance, will on one page tell you to patronize nothing but home- 
made products, and on another cry out for free trade. 

American production should be reasonably protected, there is no 
question about it. 

All the crazy laws in kingdom come will not give a workingman a 
job, but it will keep him out of one. 

Let the money alone so it can get to work and employ and the 
demand for labor will create a good price for it. 

I hope to see something in the way of currency reform and less 
tariff tinkering and interfering with legitimate business. 
Yours, truly, 

J. E. Hill, 
Manufacturer and Merchant, 



VonTi.Ai^jy,On^G., Afril22, 191S. 
Hon. Harry Lane, 

Washington, D. C. 

Dear Sir: We wish to call your attention to the imperative need 
of banking and currency reform, and wish to urge the advisability 
of inaugurating legislation of this character at the earliest possible 
moment. 

We do not feel competent to offer any suggestions, and would be 
only too willing to accept the recommendations of any congressional 
committee which investigated the matter scientifically and impar- 
tially; but we feel that any change would be an improvement, and if 
the present Congress will enact currency legislation which will permit 
of the use of our present immobile reserves, provide for an elastic cur- 
rency which can be adapted to the needs of trade, and provide a dis- 
count market which can utilize commercial paper of unquestioned 
responsibility, and thus prevent the woe, misery, and financial losses 



SUGGESTIONS RESPECTING PEOPOSED CURRENCY REFORM. 45 

of ever-recurring panics and flurries, a great boon will be conferred 
upon the American people. 

Trusting this matter will have your earnest consideration, 
Yours, very truly, 

Blumauer-Frank Drug Co., 
E. G. LiEBY, Credit Department. 



Waterloo, Iowa, April 25, 191S. 
Senator Owen, 

Chairman Senate Committee on Banking and Currency, 

Washington, D. C 

Dear Sir: Thoroughly impressed as I am that the Federal Con- 
stitution imposes upon Congress the duty to supply our people with 
legal-tender money sufficient for their use whenever practicable so 
to do, and beheving, as I do, that there is at the present time no 
reasonable excuse for a failure of that body to perform that duty by 
providiQg for some form of a paper-currency system that will give 
the country legal-tender money for its use and, at the same time, pro- 
tect depositors in our banks from loss by reason of a failure of any 
of them, I beg to submit for the consideration of your committee 
the rough outlines of a plan which, it seems to me, would accomplish 
these ends. 

Permit me to say, further, it is more with a hope that I may be able 
by the effort I have made to attract the attention of your committee, 
and through it the Congress of the Nation, to this view of the currency 
question, than any expectation that I have been able to formulate a 
plan perfect in its details, that leads me to address this letter to you, 
with the accompanying plan I have outlined. 

Horace Boies. 



THE CURRENCY QUESTION FROM A LEGAL STANDPOINT. 

Senator Owen, 

Chairman Senate Committee on Banlcing and Currency, 

Washington D. C: 

While I can make no claim to expert knowledge on the currency 
question, it is true that at different periods of my life I have felt it 
my duty to study that question from a legal standpoint, with as 
much care as I am able to give it. 

Looking at it from that standpoint, I do not see how it can be 
denied that in the absence of necessity therefor Congress can be ex- 
cused for a failure on its part to provide all the real money required 
for the use of our people, instead of providing a substitute therefor 
in the shape of banknotes, which are not money and can not be 
made such. 

It is, I believe, an unassailable legal proposition to say that the 
provision in the Federal Constitution empowering Congress to coiq 
money imposes upon that body a legal obligation to faithfully dis- 
charge that duty, and, at the same time, necessarily withholds the 
same power from every other source under our system of government. 



46 SUGGESTION'S KESPECTING PKOPOSED CUREENCY REFOEM. 

It is now established by a decision of the Supreme Court of the 
United States that a Government note, payable to bearer on demand, 
is a form of legal-tender money authorized by the Federal Con- 
stitution. 

While it is true that at the time of the establishment of our national 
banking system the Government was in no position to redeem such 
notes on demand, and, hence from necessity alone, it was then justified 
in seeking a substitute for such notes, it is equally true that such 
necessity was long since passed, and can no longer be urged as an 
excuse for the failure on the part of Congress to perform the duty 
imposed upon it by the supreme law of the Nation. 

It is a well-known fact that legal-tender paper currency would be, 
by all odds, the most convenient form of currency for general use 
that it is possible for Congress to provide; and yet at the present 
time the great majority of our people are wholly deprived of its use 
and compelled to accept in its place the notes of private corporations, 
which are not money and can not be made such. 

There are just grounds for complaint against this form of currency. 
In the first place, its authorization in the absence of necessity amounts 
to an unwarranted privilege conferred upon a very limited class of 
our people, for it enables the stockholders of a national bank to con- 
vert $1 of their own money, with the title to which they do not part, 
into $4 of their own promissory notes, which they put in circulation 
as money, collect interest on precisely as though they were money, 
and then when a borrower comes to pay his loan, they are authorized 
to demand from him, in exchange for their own paper notes that they 
loaned him, gold coin of the United States. 

No privilege approaching this in money value has ever been be- 
stowed upon any other class of our people. 

Again, no holder of these notes could pay a debt of $1 with all the 
bank notes that were ever issued if his creditor refused to accept them 
in payment of his debt, for they are not legal tender, and can not be 
made such. 

Why, then, in the absence of any necessity therefor, should Con- 
gress longer neglect to supply the people with the most convenient 
form of currency possible to produce, and allow private corporations 
to convert their own promissory no'tes into gold at the rate of $4 of 
their own notes for every dollar of their own idle money that they 
keep on deposit for the redemption of such notes, if demanded ? 

What, let me ask, could be said in defense of an act of Congress 
that would allow a private corporation to coin brass in the shape of 
gold dollars and then, by depositing $1 of gold coined by the Govern- 
ment, authorize the corporation to put four of their brass dollars in 
circulation as money, collect interest on all of these, and when the bor- 
rower was ready to pay his debt, 9 How them to demand gold dollars 
coined by the Government in exchange for the brass dollars they 
loaned their debtor ? 

And, again, then let me ask from a legal standpoint, what is the 
difference between allowing a private corporation to put $4 of its 
own promissory notes in circulation as money for every dollar of legal- 
tender money it keeps on dei)osit for their redemption, and then, if 
it chooses, demand gold coin in payment of their debt, and allowing 
the same corporation to put brass dollars in circulation as money, 



SUGGESTIONS EESPECTING PKOPOSED CURKENCY EEFOEM. 47 

four of them for every dollar they are required to keep on deposit for 
their redemption, and then when a debtor comes to pay his debts, 
allow them to demand gold for their brass that they loaned him ? 

The whole nation would instantly revolt at such a proposition, and 
I beg to express the view that the time will come, if it is not already 
here, when a protest equally loud and unanimous will be heard against 
allowing private corporations to multiply the sum of their wealth by 
four by the simple process of issuing promissory notes. 

Whatever gain there may be from such a system, whenever it is 
possible to use it, ought fairly to belong to all the people instead of a 
comparatively few private corporations. 

Second. It is not with the expectation that I shall ever be able to 
suggest a feasible plan for a national paper currency that shall be 
what it purports to be, legal-tender money, perfect in all its details, 
that leads me to continue this discussion. 

It is, however, the hope that I may be in some way able to call the 
attention of Congress to a subject of great national importance from 
a standpoint' that, so far as I know, has received no attention from 
recent sessions of that body up to this time that leads me to try to 
outline with more care than I have done before a system for a national 
paper currency that shall accord with the requirements of the Federal 
Constitution and be of practical service to our people. 

In a letter addressed to the House Committee on Banking and 
Currency of the last Congress, which may be found at page 4801 of 
the Congressional Record for March 3, 1913, the chief object of 
which was to point out a way by which a national paper currency 
could be substituted for our present national bank currency, I tried 
to discuss in a brief manner some of the features of what seemed to 
me necessary in a national paper-currency system. Some of the 
views expressed there I now want to modify and others treat more 
in detail. 

Third. I believe it is safe to say the experience of this Nation 
under our national banking system, together with its experience 
with our Treasury notes, has demonstrated the fact that a reserve 
in the Treasury of $1 in gold for the redemption of $4 in paper notes 
secured by the credit of the Nation behind them is sufficient to safe- 
guard such notes and keep them at par as money with our people, 
at least; but to put that question beyond dispute the world over, I 
would have Congress provide for a silver reserve of equal amount in 
market value, "measured by gold, and then authorize the Treasurer 
to use silver at its market price as bullion for redemption purposes 
whenever, in his estimation, the best interests of the Nation require 
it. Such a provision would double the source of supply for a reserve, 
safeguard the gold reserve in the Treasury, and would not impair 
our gold standard. Beyond this is the important fact that by every 
means within the power of Congress to provide with safety to the 
business interests of the country the National Treasury should be 
made the depository of our gold and silver, so that the Nation would 
at all times be prepared to meet any conditions that might arise. 

Fourth. In my judgment the reserve in the Treasury for the re- 
demption of notes should be bullion instead of coin, and each kind, 
gold and silver, should be used at its market value in the great 
markets of the world on the day of redemption. 

2736—13 4 



48 SUGGESTIONS KESPECTING PKOPOSED CUKRENCY EEFOEM. 

SucL. use would give us a more stable paper dollar than coin of 
either metal can do, for no change in the market price of bullion 
Would change the face value of the paper dollar. It would always 
be worth its exact face value on the day of its redemption, no more 
and no less, the world over, something that can not be said of coin. 

Again, it would lessen — if it did not destroy — the disposition to 
hoard money, for in the hands of a private individual it would be 
simply a commodity which he would be compelled to sell in the mar- 
kets before he could use it. It would save the Government much 
of the expense of our mints, for while the bullion used should be of 
the same fineness and quality as that iu our coins, it would be run in 
much larger bodies, and in that way much of the expense of han- 
dling it would be avoided and the cost of coinage could be confined 
to a quantity barely sufficient for change in redemption of Govern- 
ment notes, and for general use. 

In a proper system with Government notes safely guarded there 
would be no necessity for the coining of either metal beyond that of 
small change, and in that way the reserve of the money metals in 
the Treasury could be extended almost to the limit of the production 
of these metals from our mines, giving us a means of defense against 
foreign aggression possessed by no other nation of the earth, for we 
are the peers of all other nations in the production of these metals. 

Fifth. It is, I believe, conceded by financiers of all classes that the 
currency of a country should possess the quality of elasticity — that is, 
be capable of expansion and contraction, as the business interests 
of the country require; this, I believe, could be more easily, and 
more perfectly, accomplished with one form of national paper cur- 
rency than it ever can be with two or more forms of any other kind 
of currency. Eor the accomplishment of that end in our currency 
system the following is a plan I have thought of: 

Let us divide the currency system into three divisions: First, the 
Government which supplies the notes; second, the banks which must 
be the distributors of the money among the people; third, the public 
who are to use the mon^y, and in justice should pay for it — the cost 
of production and distribution. 

First in importance in this division is the Government. It must 
prepare the notes for use. Its duty does not stop with the mere 
preparation of such notes. It could not rightfully dump them in the 
streets when ready for use for everyone to help themselves as they 
chose. It must go further and provide a safe and convenient way 
for getting them into the hands of the people; and in doing both of 
these thiags it must necessarily incur expense which it is entirely 
just that the users of the money in the end shall pay. 

Next in importance in the working of such a system would be the 
banks, and they should be national banks, subject to supervision by 
the National Government from which they would derive the notes 
for distribution. To protect the Government from loss by the notes 
furnished the banks they should be required to buy and deposit with 
the Treasurer interest-bearing Government bonds equal in lace value 
to the sum total of all Government notes furnished them for the 
transaction of their business, and for the use of these notes be re- 
quired to pay the Government a rate of interest while in actual use 
by them sufficient to compensate it for the cost of producing the 
notes and the further cost of the proper supervision of all banks 



SUGGESTIONS JlESPECTING PKOPOSED CXHIKENCY REFOKM. 49 

which would handle the notes. Such a deposit woiild serve a double 
purpose. It would safeguard the Government from loss and at the 
same time put the bulk of the capital employed in a bank in interest- 
bearing securities from the first, a fact that should be taken into 
consideration in fixing the rate of interest a bank should be allowed 
to charge a borrower. 

The banks therefore would stand in the double relation to the 
Government of borrowers of the notes used by them and agents of 
the Government in the distribution of these notes. 

The rate of interest which a bank would have to pay the Govern- 
ment for the use of the notes while in its possession, or in any way 
under its control, would always induce it to return any surplus of 
these notes to the Treasury the moment they ceased to be profitable 
for their use in their hands, and the same influence would induce it 
to withdraw the notes the inoment there was a legitimate demand for 
their profitable use by the people, so that purely business interests 
would at all times control the volume of currency in circulation at 
any one time. Of course, this plan must imply a right on the part of 
the bank to withdraw or return Government notes from or to the 
Treasury at its own will up to the face value of the bonds it has on 
deposit as security for their use, and a like right on the part of the 
Government to determine the amount of the notes each bank should 
be entitled to use. 

Sixth. A national financial system, controlled by national laws, 
and operated by national banks organized under national laws, ought 
to provide for the safety of those who become the creditors of such 
banks as depositors at least. 

While the banks should be primarily responsible to depositors for 
funds left with them, the General Government should be made to 
stand as security for any loss an individual might suffer by reason of 
the failure of a bank, and this liability should be taken into account 
in fixing the rate of interest a bank should be required to pay the 
Government for the use of its notes. 

Seventh. One further proposition must be considered, and that 
is the compensation the bank should be entitled to for the services 
and expenses in handling the notes of the Government. 

Here I am quite willing to concede that the laws should be liberal, 
so as to attract capital to this liae of business, for banks are a public 
necessity and their organization and management by competent 
help should be encouraged. 

The difference between the rate of interest the bank should pay the 
Government under the system I have tried to outline, and the rate the 
b.ank should be authorized to charge a borrower from the bank, and 
the rate of exchange authorized to charge the buyer should deter- 
mine the compensation the bank would receive for its services and 
expenses in the conduct of its busiaess under such a system, and at 
the same time fix the rate of interest borrowers of national currency 
in every State of the Union would be required to pay for the use of 
such money. , 

I do not pretend to be able to say what that rate should be, but I know 
there are plenty of men in Congress and out of it who could easily 
arrive at a just sum which would protect the Government and fully 
compensate the banks under such a system, and I am willing to 
hazard the guess that it would not much, if any, exceed one-half of the 



50 SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

average rate of interest exacted from borrowers of money through- 
out the Nation at the present time. 

If I am anywhere near right in this guess, who can estimate the 
advantages that would accrue to the great mass of our people from 
such a system, for the vast majority of them are borrowers of money? 

Such legislation would do more to allay the friction between cap- 
ital and labor that can ever be done by legislation in any other way, 
for whatever the rate of interest might be under such a system it would 
be known that it had been arrived at upon business principles by 
computing the actual cost to the Government of its production and 
distribution among the people. 

If any question of the right of Congress to fix the rate of interest 
for the several States should arise, it seems to me it would be obviated 
by confining the rate to loans of Government money, leaving the 
States to fix their own rates on every other form of indebtedness, 
for the right to coin money conferred upon Congress by the Consti- 
tution must, I believe, be held to imply the right to regulate its use. 

Horace Boies. 
Waterloo, Iowa, April 25, 1913. 



Tjilsa, OKI.A., April 26, 1913. 
Hon. Robert L. Owen, 

United States Senator, Washington, D. O. 

My Dear Senator: It would be quite presumptuous for me to 
suggest anything new to you pertaining to national-bank legislation, 
because you have studied this important subject from every view- 
point. But as a depositor I beg the privilege of assuring you that 
confidence in national banks would be more conserved by two impor- 
tant exactions, to wit: 

First. That the names of all stockholders of national banks be con- 
spicuously posted, that depositors might conveniently ascertain the 
names of those responsible for the institution in which deposits are 
made and as a safeguard against secret stock manipulation whereby 
conservative bank management may suddenly go into the clutches of 
financial desperadoes. 

Second. That stockholders of national banks be held personally 
reliable, the same as copartners, for all liabilities incurred by such 
banks. While such liability would be a marked departure from the 
avowed exemption benefit of corporation enterprises, it would result 
in the end most happily for the public good and would prevent the 
lure now frequently made by wildcat banks in using the name of a 
rich capitalistic stockholder, with but little stock, from attracting 
deposits to such particular bank without assuring requisite recurring 
responsibilities. 

The elimination of exemptions to stockholders in national banks, 
while striking terror to the hearts of Wall Street manipulators, would 
stimulate banking upon such high plane that in order for a deposit 
institution to succeed it would be. necessary that its stockholders be 
either exceptionally wealthy or possess most exemplary character 
and business ability. 

Regretfully, with the small accumulations of a lifetime, fear per- 
vades me day and night that the best bank (as we now have it) may 



SUGGESTIONS KESPECTING PROPOSED CURRENCY REFORM. 51 

fail summarily and without notice, with our little accumulation 
absorbed from us. 

With highest personal regards, sincerely, yours, 

C. J. Wrightsman, 

Oil Operator, Banker, and Merchant. 



NATIONAL banks' RELATION TO SAVINGS BANKS. 

Little Falls, N. Y., April 26, 1913. 
Hon. Robert L. Owen, 

United States Senator from OTdalioma, 

Chairman Committee on Banking and Currency, 

Washington, D. C. 

My Dear Sir; I have just returned from a trip taken to cities 
west of here, where I have conferred with a representative, in each 
city, of savings banks ; men with whom I am so intimately acquainted 
that I could talk with them confidentially and without danger of their 
saying anything to their associates concerning our talk. These 
representatives of influential and large savings banks agreed, upon 
looking over the statements of the condition of savings banks, that the 
surplus which they had in securities, inventoried at their actual 
market value a few months ago, has been wiped out by the decline 
in the market value of said securities or assets in very many savings 
banks of the country. 

We all admit that a savings bank should safeguard the earnings 
of the poorer class of people in communities by having at all times 
assets which, inventoried at their immediate market value, would pay 
their depositors in full if said assets were converted into money (both 
principal and interest due said depositors). 

The savings banks are obliged to loan. Often it is on real estate, 
taking mortgages, and are supposed to loan up to 50 to 60 per cent 
of the value of the mortgaged property, and I think this is pretty 
well adhered to; but in addition to that, in order to use all the money 
that is deposited with them and keep it drawing interest, they have 
invested in securities, believed to be actually good, at the market 
price. Savings banks have been paying their depositors from 3^ to 
4 per cent interest, and they have been loaning the money, investing 
it where it would bring from 4 to 5| per cent. 

Now, then, the advance in salaries and in the general expense of 
conducting such business has increased, and the difference between 
the interest they have paid out and the interest they have received, 
together with the fact that they have constantly necessarily had some 
large amounts of cash on hand which is not drawing interest, has 
proven that they have been doing the business at too small a margin. 
This fact, coupled with the decline in the value of their securities, 
which, on hundreds of millions of dollars has amounted to an average 
of 5 per cent within a short time past, has left many savings banks 
in the condition where their surplus has not only been wiped out 
entirely, but if all of their assets were now to be converted into money 
at the present market price without any further decline depositors 
could not be paid the amount that the savings banks owe them. It 
may be that in time the securities will advance again in market 



52 SUGGESTIONS EESPECTING PKOPOSED CUKEENCY BEFOEM. 

value, biit if the present condition should become known concerning 
any one of our savings banks, we can assume and bejieve that there 
would be a run on said savings bank not only, but upon many, and as 
a consequence the securities which they hold would become more 
seriously impaired in value than now- 

Further, you will appreciate the seriousness of the situation when 
I add that several months ago the savings banks at that time, taking 
their assets at the full market value, were found, many of them, to 
have less than 1 per cent surplus, and the strpngest anaorig them not 
over 7 to 8 per cent. The decline of 5 per cent, on the average, brings 
the strongest savings bq.nk pretty near the '^ragged edge," but in all 
cases where months ago they had but a surplus of 5 per cent they now 
are actually insolvent. 

You may answer that the Federal Grovernment has nothing to do 
with the several State savings banks; that they, as well as the life 
insurjance companies and fire insurance companies, are under the 
supervision of the several State governments. I reply that the 
circulating medium, the currency, for all of these irnportant factprs 
in community is United States mpiaey rea% ; that it i^ the '^ circu- 
lation" of the national banks and of the United States Treasury. 

Npw, as tp the natipnal banks, it is expected and required pf them 
that they shall take care of the great industrial needs of the Nation. 
Their condition should be, and is, far more favorable, so far as security 
is concerned, than that of the savings banks, for instance, for the 
national bank holds bills receivable given by individuals, and said 
bills receivable are not subject to any decline or shrinkage, for tt^ey 
have behind them the responsibility of the makers, whp own actual 
property, and, as a rule, the makers of the notes which are discounted 
by the national bank have, m so-called '^ quick assets," sufficient to 
pay their debts without including their plants consisting of real 
estate, machinery, etc.; but '^ quick assets," so-called, cannot always 
be converted into money; the very object pn the part pf the national 
banks is to give their customers time to realize upon their merchandise 
in order to pay their pljligatipns tP the natipnal bank. Take the 
National Herkimer Cpunty Bar^k, IpcatecJ in this little city of 
12,000 inhabitants, of which I happen to be president. We have 
from our depositors about $553,000, for which certificates of deposit 
are issued, same bearing 2 per cent interest. These certificates of 
deposit are payable '^uppn demand," pf course. In additipn, we 
have on an average about $750,000 deppsited by our merchants, 
manufacturers, and farmers, with whom we are doing business cur- 
rently (daily) and who never would give the bank any trouble, because 
they know about and fully understand our bank's condition. If, 
however, in a panic, a run should be instituted upon ai^y of the 
savings banks, the class in comrnunity who hold our IjanJ^'s cer- 
tificates of deposit runninsj from $100 to a few thousand each quite 
likely would demand their money, but as our capital and surplus, 
except what is held in our vaults and also by our reserve agents, as 
well as the money we have received from depositors, is loaned at 
interest to our merchants, mapufacturers, and farniers, where we 
believe it is absolutely safe and that there is property behind the 
notes which will fully care for them, yet our condition is such that 
if we could not realize on said bills receivable and if a few hundred 
thousand dollars should be called for on the part of our depositors, 



SUGGESTIONS KESPECTING PROPOSED CUREENCY REFORM. 53 

our bank, unless it could negotiate its bills receivable, would be in 
trouble — I mean all of the national banks would be distressed under 
such circumstances. 

Now, then, I hold that, with the conditions confronting us at 
present pertaining to the savings banks, trust companies, and so on, 
wonderful responsibility rests upon the United States national banks 
and United States Treasury, for they control the circulating medium. 
We must admit that if the General Government could hold on hand 
emergency currency, which could be loaned temporarily to the na- 
tional banks by their pledging and turning over good securities to the 
Government of the United States with the indorsement of the bank, 
loaning in time of stress said emergency currency, the Government 
to charge 4 per cent per annum interest the first month, 5 per cent 
the second, 6 per cent the third, and 7 per cent the fourth, then ours 
and other national banks could, in turn, take over from the savings 
bank such properties as would absolutely be safe and supply them 
with sufficient currency to meet any run upon said savings bank — 
that is, any run within the bounds of reason — and give the savings 
institutions opportunity for the advance in values of good properties 
when the country has adjusted itself to the normal order of things. 

I venture to trespass upon your time again for the reason that 
there should be something done by the National Government at once 
to take care of the situation which confronts us. It may be that you 
can not now decide upon what is best for the future in the long run, 
but some present relief action should be taken and a law enacted by 
Congress now which would enable us to take care of conditions which 
are likely to arise for the reasons which I have attempted to state 
herein. 

I have not dared to talk with but a few close friends who are con- 
nected with national banks and with savings banks. I do not wish 
to feel pessimistic and do not believe that I am, for I have confidence 
that Congress and the President will favor action without further 
delay which will take care of this country. 

It is a manifest absurdity that a bank holding the note of a manu- 
facturer who has in plant, machinery, and apparatus — property worth 
$100,000, and who also has in ^^ quick assets," to wit, in cash, bills, 
and accounts receivable, merchandise completed and in process — more 
than enough to pay all his indebtedness without including the value 
of his real estate, should not be able to have the assistance of the 
National Government, for the reason that the Federal Government 
controls the national banks and United States currency (the circu- 
lating medium). Hence my former letter, in which I begged that the 
examiners sent by the comptroller should investigate fully with the 
directors the quality of all the assets of the bank and that a record, 
of same should be kept at Washington of all safe items of $5,000 and 
upward and that in time of stress the Federal Government should 
loan to the national banks 90 per cent of the face value of good 
securities guaranteed by the national bank that borrowed. 

One thing I omitted to mention: In order that paper pledged to 
the National Government for said temporary loan should not fall 
due when held at Washington, it would be better for the national 
banks to require their customers that notes should be made payable 
^'on demand, with interest," rather than to make them at three or 
four months' time and discount same. The loss of interest by having 



54 SUGGESTIONS EESPECTING PEOPOSED CUKRENCY REFOEM. 

notes drawn in such manner instead of discounting paper would be 
but a trifle. It would not answer, of course, for paper to mature 
while in the hands of the National Government, for the renewing of 
same would require too much detail. National banks, however, 
would have an understanding with their customers that the interest 
should be paid quarterly, memoranda of same to be made on back 
of note and signed by borrower. 

If you deemed it judicious and the risk not too great, I should be 
very glad indeed to see the presidents and ofiicers of the national 
banks in such cities as Syracuse and Buffalo, for instance, and Utica 
as well, and talk over matters with them, but I have been afraid to 
say very much, for fear excitement would arise and harm would be 
done. 

I trust you may pardon me for intruding myself again upon your 
attention. 

It will answer for me to say that my business has given me a very 
large acquaintance throughout the United States, and I have tried 
to the best of my ability to be of assistance to a pretty large number 
of young men whom I have had the pleasure of helping to start in 
successful business. Hence I have written, hoping that my experi- 
ence warrants me in thus writing. 

THE SO-CALLED ALDRICH PLAN. 

If former Senator Aldrich's plan should be adopted, I assume that 
country banks having $100,000 to $500,000 capital and surplus 
would hesitate about becoming associated with a group of banks, 
for they would be dominated by the larger banks with which they 
were grouped. The controlling factor of the entire group would be 
represented by a majority of capital interested. The smaller banks 
might oppose loaning money on securities taken over from some of 
their associated banks who possibly might be creditors of the more 
powerful institutions, and if loss resulted the smaller banks would 
have to bear their proportion of same, no matter how much they 
might object to the securities at the time they were taken. 

A more serious thought, however, is the fact that the country 
banks would be disclosing to the group with which they were affili- 
ated the character and quality of bills receivable and other assets. 
For this reason it would be very much more preferable to do business 
directly with Washington. Boards of directors are made up of 
representatives of all political parties, and if permitted to deal 
directly with Washington there could be no fear of discrimination 
bemg practiced against them. 

If the Aldrich plan should be adopted and groups of banks should 
be established throughout the United States, would not same give 
the opportunity to the ^'system," so called, of New York affiliated 
banks that are aU powerful for greater control of the monetary con- 
ditions of the country than is now the case ? Can you not conceive 
that there would be a chain of groups of banks extending from the 
Atlantic to the Pacific, said groups located in all the principal cities 
and connected with and that might be dominated by the great banks 
of New York City, for the reason that such an association of groups 
would act in concert ? The fountain head, so far as resources and 



SUGGESTIONS EESPECTING PKOPOSED CURKENCY REFOEM. 55 

influence being concerned, would still exist in New York, the metropo- 
lis of this land. 

As to international questions involved, I can not see how the 
Aldrich plan would be helpful in preventing drains of gold from 
this coimtry. Foreign countries holding United States securities 
could send them here to be sold, and the purchaser would have to 
pay in gold for same. 

RESERVE AGENTS. 

I beheve that asking assistance from Washington in the manner 
I have indicated would not be resorted to except it is absolutely 
necessary. Country banks would first seek help from their reserve 
agents in the great cities, who would be in shape, if the plan I have 
suggested is adopted, to promptly assist their correspondents, the 
country banks. 

The object in all that I have to say is that Congress shall provide 
some way to take care of the situation now, and then, as the result 
of your further consideration, finally adopt a plan which will be 
ideal in every respect. 

I promise you not to wiite to you further except as you might 
command me to do so. 

Very resnectfully, yours, D. H. Burrell. 



MuNCiE, Ind., April 29, 1913. 
Senator Owen, 

Chairman Senate Currency Committee, Washington, D. C. 

My Dear Sir: Am inclosing two clippings on the currency ques- 
tion which were published in the Financial Age at New York, and 
possibly your attention has not been called to them. 

My particular desire is to have incorporated in the currency propo- 
sition provision for interior clearing associations in connection with 
a national clearing association and under the national control. You 
will understand that the interior banks are contributing at least 
twenty billions of the credit currency now in daily use, and there is 
absolute necessity that the national. State, and trust companies be 
placed under proper supervision and control in order to preserve 
the equilibrium and safeguard the system prevailing, and this can be 
done without the concentration of funds or reserves in any particular 
locality or banks; leave all reserves in liquid form for use of the banks 
as their daily working capital, for they all keep 20 to 30 per cent for 
that purpose as a necessity. 

Also provide emergency currency for the discount of current bills, 
and it is about all accomplished. My contention is that the banker 
is as competent to care for any reserve proposed as he is for the other 
75 per cent of his deposits; in fact, our present reserve requirement 
does not fit in with the present credit-currency system. 

I am more than anxious that the reform in currency laws be adapted 
to preserve our present daily methods of transmitting banking busi- 
ness, as the people will continue this system for the next 50 years. 
Yours, very truly, 

C. H. Church, 
Cashier Delaware County National Banlc. 



56 suggestions eespecting peoposed cueeency eefoem. 

Panics — Bankees the Peimary Cause, Owing to Peesent Sys- 
tem AND Methods Having No Stability. 

[By C. H. Church, of Munice, in the Financial Age (New York), March 29, 1913.] 

That the many financial panics afflicting this country for the past 
40 years, close students of finance will practically agree, can all be 
traced indirectly to the bankers themselves; first, becoming panic- 
stricken, as at the first intimation of a crisis they use extreme but 
futile efforts to fortify themselves for self-preservation. 

Their situation is soon communicated to the general public, and 
so intensified that depositors become distrustful, and the panic is on 
in full force, as each depositor undertakes the effort to save himself 
from loss, resulting in a forced movement of practical suspension of 
all the banks. 

It is the system the bankers are working under, with the principal 
feature confronting them of demand and supply, for which no provi- 
sion is made. 

All business is based on confidence, which to-day the depositor has 
in his banker, but to-morrow he is distrusted and ordinary business 
comes to a standstill, as the depositor through distrust declines to 
continue the use of the system under which this twenty-nine billion 
of credit currency has been accumulated, thereby further crippling 
the banker; as is well known the banks can not pay back this large 
sum in actual cash, as we have only about four billions in the country. 

This condition distresses the banker equally with the depositor; 
still he has no recourse except suspension; but as no actual loss has 
yet occurred to either party only confidence and regular business is 
disturbed, and only losses follow if the situation is long continued. 

Remove the cause is the only remedy. 

Provide means whereby the former relationship and confidence 
between the banker and his depositor can be preserved and main- 
tained and business will continue undisturbed. It is simply a ques- 
tion of distrust and fear of loss which is entirely obliterated by a 
guaranty of his deposit, as easily illustrated in 1907, when the guar- 
anteed deposits of the Government, States, cities, counties, town- 
ships, and school districts all remained undisturbexi excepting for 
the usual business requirements. 

Suppose, for example, all deposits had been guaranteed; there would 
have been no occasion for distrust, would have been no panic, no 
enormous losses, no failures, no slow-down of business. The actual 
losses to the public occurred after the panic was precipitated and 
intensified through manipulation and fear of its magnitude. Satisfy 
the public of the actual safety of their private funds, as we already 
do the custodian of public funds, and which they have a right to 
demand, and the problem is practically solved. 

Insurance of deposits is as practical for protection as any other 
form of property insurance and would result in assuring the banker 
and the business world of stability in the trade and commerce of 
this country. 

It is well known that the bankers' profits and shareholders' divi- 
dends are produced in a large measure from their deposits, so it is 
perfectly proper and logical that a tax on the aggregate deposits be 
assessed to provide a fund for guaranty and protection not only to 
the depositor but indirectly to the shareholder. 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 57 

In order that this movement may be made general and effective for 
all business purposes, the 20,000 State banks and trust companies 
should have the same consideration as the national banks, which can 
be safely effected through cooperation with local clearing associations 
formed into groups of 100 or more, under such restrictions and super- 
vision as will make every bank safe and sound, and to preserve their 
membership be subject to local examination and inspection. 

With 100 or more local bankers to criticize and watch each others' 
methods of doing business under penalty of expulsion if found going 
wrong, there will be no more bank failures, and the estunated rate of 
cost of guaranty, now one-twentieth, can be reduced at least one-half. 

Let this proposition include a central clearing association to pro- 
vide emergency currency to the local clearing association when needed, 
under safe restrictions, and the whole problem is solved without the 
central accumulation of funds, and also relieve 20,000 banks from 
obligation to other banking interests outside of their cooperative 
group. 

RESERVES ANALYZED. 

A word as to reserve funds. There is absolutely no reason or foun- 
dation for such a proposition. The 15 per cent or 25 per cent now 
required by the national bank act is an antiquated absurdity. For 
instance, the bank loans a customer $10,000 and places same to his 
credit, temporally increasing the bank's deposits that amount, also 
making it obligatory to increase the banks reserve $2,500, which was 
never the intention of the law. The 15 per cent or 25 per cent 
required is the daily working capital of the bank, and the 20,000 
banks under State charters requiring no reserve, nearly all have 
even more on hand, according to their statements. 

A proposition is made to segregate the bank's reserve in the hands 
of a trustee. Why not continue the trusteeship to the other 75 per 
cent if the banker is incompetent to care for the first 25 per cent? 

The facts are that 50 years ago the reserve fund in force may have 
been of some protection to the depositor, but with $29,000,000,000 of 
credit deposits some other system must be recognized, and the insur- 
ance or guaranty of deposits will provide adequate security and full 
protection for all depositors to their entire satisfaction. 

PROTECTION TO THE GOVERNMENT. 

A fund can be provided by assessment through the cooperation of 
the local association and maintained to a maximum invested in such 
bonds as may be acceptable and deposited with the United States 
Treasury as ample mdemnity against any possible loss the Govern- 
ment might sustam. 

In this connection provide that the affairs of any insolvent insti- 
tution may be adjusted through the local association, of which they 
may be a member. 

The revision of our monetary system vitally concerns aU the people, 
as is shown by the extensive increase in deposits durmg the past 10 
years, and an indication that they desire to follow the present methods 
of commercial banking, especially in the interior districts, w^here it is 
the rule for nearly every farmer to have a bank account, in addition 
to the business man and manufacturer, and our aim should be to pre- 



58 SUGGESTIONS EESPECTING PEOPOSED CURKEI^CY REFOEM. 

serve and maintain the present system of credit currency, now so 
universal, and place it on a solid, stable foundation. 

We have also some 250,000 bankers and shareholders who should 
be particularly interested that a plan be devised that will insure per- 
manent stability to their business investments, thereby assuring the 
business world that no financial crisis need be expected. All we need 
to effect this is sensible cooperation among the bankers. 



Provision for National Clearing Association Under 

Government. 

interior clearing association to cooperate — NO concentration 

OF FUNDS RETIREMENT OF NATIONAL-BANK CIRCULATION — GOV- 
ERNMENT TO PROVIDE ALL CIRCULATION, ALSO EMERGENCY FUND. 

[C. H. Church, Cashier Delaware County National Bank, in the Financial Age,] 

In this currency-reform movement much time and money has been 
expended and the principal service, everyday currency system, has been 
entirely overlooked. We took a look at the European systems, but 
found nothing useful to us. The American people appear to be a class 
by themselves in being able to provide a daily circulating medium of 
at least fifteen to twenty billion dollars in check currency that circu- 
lates freely with splendid results, and this is the most important prob- 
lem to solve, how to better provide and protect the basis or founda- 
tion on which it rests. The extensive use of this medium through the 
interior banks, where we have no record of the clearing, is actually 
surprising, as daily transactions over bank counters of one or two 
hundred thousand require scarcely any actual money. 

The recent report of the Comptroller of the Currency shows the 
25,000 banks of the country have practically $25,000,000,000 credits 
subject to check, with only about $4,000,000,000 actual money to work 
with, and a good portion of that not in circulation. It is a fact that 
all the business men and nearly all the farmers have their check books 
and contribute to this enormous medium of circulation, which takes 
the place of actual cash in our daily commercial transactions, and it 
is demonstrated that the business interests of every community neces- 
sitate this method, which it seems impossible to dispense with. 

The American people are confronted with new conditions, new cir- 
cumstances, and new prospects which entirely change ideas prevalent 
and practical 20 or 30 years ago. Theories apparently sound at that 
period have been completely upset by the experience and practice of 
the people who have recently become active factors in the business 
world and are now seeking a revision of our monetary system with a 
substitute in every way practical and applicable to present up-to-date 
business methods, and broad enough to meet all requirements — a 
relief from our present panic breeder. 

In the emergency of 1907 the several clearing houses of the reserve 
cities proved themselves a most potent factor of financial machinery. 
Although without legality, merely a cooperative machine, they pro- 
vided practical and efficient methods of relief, and it seems possible 
to legalize and extend the fundamental function involved, whereby 
banks in all sections of the country may organize by voluntary coop- 



SUGGESTIONS EESPECTING PKOPOSED CURKENCY EEFOEM. 59 

eration and combine their resources for self-preservation and protec- 
tion to their depositors operating under such supervision and restric- 
tions as the district clearing house may provide, thereby practically 
insuring every member to be safe and sound. 

Let provision be made for a national clearing association, operated 
by the United States Government, under control of a nonpartisan 
commission composed of 15 members, 12 of them to be life members 
appointed by the President, with the Treasurer of the United States, 
the Attorney General, and the Comptroller of the Currency, to be 
ex officio members of the commission, the members to fill all vacan- 
cies, the association to be located at Washington, D. C, and to be 
clothed with the following powers : To provide full control of and issue 
the entire circulating medium, which should be uniform and adequate 
for the magnitude of our business requirements. To provide for local 
clearing associations throughout the interior by voluntary coopera- 
tion of National and State chartered banks, including trust compa- 
nies, all under local uniform regulations and inspection, thereby placing 
all financial institutions serving the public commercially on a basis 
to concentrate their resources whenever necessary and participate in 
the emergency assistance provided by the national reserve clearing- 
association, thus giving additional protection to the public and pre- 
serving our present system and methods. The national clearing 
association to act as trustee for all national banks in taking over 
in trust the seven hundred million United States bonds now held as 
security for the bank circulation, to redeem the outstanding national 
circulation as presented, by the issue of an equal amount of legal 
tenders in payment therefor, and to hold the bonds as security until 
maturity for the ultimate redemption of the legal tenders, all issues 
of legal tenders or emergency currency by the Government to be 
acceptable in payment of public or private debts, redeemable at the 
pleasure of the United States. 

The national banks in accepting this proposition should be reim- 
bursed a reasonable amount for costs of premiums paid, as the Gov- 
ernment will be relieved of interest while held in trust. 

This plan assures practically the same security to our circulation 
as before, backed by the United States bonds good from Maine to 
Texas, and no one wants redemption excepting soiled or mutilated 
notes, which may be provided for. 

The national clearing association may issue emergency currencj^ 
whenever, in the judgment of the commission, it is deemed advisable 
on application from banks as hereinafter provided. 

A system of interior clearing houses shall be provided in each State, 
to include National and State banks, and trust companies formed into 
convenient groups, whose combined capital shall aggregate not less 
than $5,000,000. They shall be provided with the necessary officers- 
and governed similarly to those now existing in large cities, to have 
uniformity in rules and regulations, with supervision of special exam- 
iners reporting regularly to its officers and to the national clearing 
association the standing of each member irrespective of National 
or State examinations. Any member desiring rediscount of its cur- 
rent commercial paper, maturing within four months, applies to its 
group clearing-house offi_cials, who on a favorable report and recom- 
mendation of their examination, will take over the proposed paper as 
collateral in trust, and issue therefor a guaranteed certificate at 50 per 



60 SUGGESTIONS KESPECTING PROPOSED CUEEENCY EEFOEM. 

cent of the face value of the collateral so deposited, with maturity of 
even date as the collateral, which certificate with proper indorsement 
and guaranty of the banks' authorized officers and directors may be 
negotiated at the national association at its face value on a basis of 
4 per cent interest for that period named, not exceeding four months, 
and when redeemed by a deposit of current funds for that purpose 
with the national clearing association, then the securities deposited 
with the group clearing house will be surrendered to the owner, and 
should any of the securities be paid to the custodian, said payment 
shall be applied in liquidation of the certificate issued therefor. In 
case of default the securities shall be immediately realized on by pub- 
lic or private sale and applied in payment of the certificate less ex- 
penses. One-half of the interest paid, shall be returned to interior 
clearing house issuing the guaranteed certificate, who shall upon de- 
fault at once proceed to reimburse the national clearing house associa- 
tion. The national reserve association will redeem emergency circu- 
lation when presented at the expiration of the redemption period 
for which same was issued, and the interest received to apply as 
expenses. 

The indemnity proposed to the Government in the emergency cur- 
rency transaction is the combined resources of the several members 
of the group clearing association, together with the collateral for 
double the amount of the proposed loan, an aggregate exceeding ten 
times the amount involved. This proposition applies to clearing 
houses now in existence in reserve cities, as well as those to be estab- 
lished in the interior. 

When the loaning power is placed with the Government under 
proper restrictions, you have divorced Wall Street or the Money Trust 
from obligations to assist in the crop movement, and also provided for 
a standard reasonable interest rate for commercial business and the 
opportunity for the farmer to participate as a borrower through his 
home bank. 

The conditions now prevailing in this country demonstrate the 
loyalty and confidence of our people in Government issues, either 
bonds or currency, that all obligations based on our Government 
credit are acceptable by the public at par; even in the late panic there 
seemed to be no preference or distinction ; therefore it is practical to 
maintain this feature by placing a severe penalty on any attempt to 
depreciate their values by speculation. 

There is no necessity for a fixed redemption period of our circu- 
lating medium, as our usual business methods do not require it, and 
the credit of the Government is ample to maintain at par all its issues 
by eliminating the speculative features, and this can be easily accom- 
plished by penalizing all efforts to handle Government issues in the 
markets below the par value, thereby sustaining them to a permanent 
standard by virtue of loyalty and good sense of the American people. 

In our modern monetary system now in general use it is almost 
impossible to separate for actual business purposes the so-called 
money from the other circulating media or bank credits or checks 
that supply the place of actual money in our daily routine, as they 
are interchangeable, each dependent on the other for the service 
required. It is therefore highly important that the foundation of 
each is made safe and sound, that neither may ever be distrusted by 



SUGGESTIONS KESPECTING PKOPOSED CUKKENCY REFORM. 61 

the public; when that is accompHshed the panic feature is entirely 
obliterated. 

Bankers participating in this movement with an established busi- 
ness will reap many advantages, as they are assured of its stability, 
they having sure access in time of stress to a sufficient amount of 
currency to satisfy all demands of their customers and be enabled to 
maintain their business relations. This source of supply is readily 
available, not depending as now to draw from one another to its 
detriment. 

It assures the interior banker of practical independence by being 
loyal to his clearing house, with whose assistance he is enabled to 
realize quickly on such assets as he received in his current business 
transactions, from which selections are made by the examiner. It is 
also an assured fact that whenever the general public fully understand 
the situation — that ample protection is provided for all clearing-house 
members — the usual distrust prevailing in strenuous times will be 
entirely eliminated, as this proposition is practically equivalent to a 
cooperative guaranty or full insurance of deposits. 

Let us not delay this enactment, which will give the public such 
assurance of the stability of the financial institutions in which they 
are interested, that all the people of this country may with confidence 
participate in the unexampled period of prosperity which in the near 
luture seems destined to pervade this entire nation. 

When this country was in its infancy with our resources and indus- 
tries only partially developed, there came the slogan from would-be 
financiers that it was not in the province of this Government to loan 
its power to those who could not maintain themselves, but this period 
passed and time has proven its fallacy, so to-day the Government is 
exercising its natural prerogative to loan its credit for the betterment 
of the people who alone constitute the Government and are entitled 
to this consideration. 

The swivel-chair bankers will look wise and declaim that this prop- 
osition stands for a revival of the old greenback theory, and the dan- 
ger of flooding this country with a deluge of irredeemable currency, 
in effect to drive gold away to foreign countries. These are stereo- 
typed fallacies, long since exploded. This proposed issue of paper 
circulation in excess of the $700,000,000 national currency now extant, 
will depend on the demands of the banker and will automatically adjust 
itself, according to the law of supply and demand. The tendency to 
disturb the gold supply by excessive use of the circulation medium 
is disproved by the people's $15,000,000 of check circulation now 
in daily use. Nearly all of the bugbear ideas and theories advanced 
by the would-be scientific financiers during the past 50 years have 
been retired as nonapplicable to the question, having served their 
political ends. Prohibit speculation in Government money issues, 
leaving the redemption feature without restrictions, and they will find 
their proper level adjustment and absorption by the people in their 
stable business conditions. 

The interior bankers represent practically one-half of the total 
banking resources of this country and with this reform available the 
people's interests will be more fully protected, as the foundation of 
their currency circulation, their deposit banks, are safeguarded to the 
extent that bank failures are practically eliminated, confidence main- 
tained, and the banks themselves placed in the attitude of indepen- 



62 SUGGESTIONS EESPECTING PKOPOSED CUEEEISTCY BEFOEM. 

dence in the control of their position, subject to no dictation of obhga- 
tion by any combination or interests. 

Our monetary system of to-day in general use is sound, and safe 
and practical for service to all our commercial interests, rendered so 
by the practice of the people, and by the integrity of our independent 
banks, both National and State, and this condition can be fully sus- 
tained through the evolution of our clearing-house methods, extended 
to all commercial bankers; and with this feature accomplished and 
the issue of circulation provided for, we have no reason or excuse to 
look to foreign nations for examples or precedents in monetary 
systems. 

Athens, Tex., April 30, 1913. 
Hon. R. M. Owen, Washington, D. C. 

Dear Sir: I desire to suggest to your committee, relative to the 
proposed currency legislation, that the following be embodied in 
same: 

All banks engaged in commercial banking should operate under 
uniform national charters. All of them are engaged in interstate 
business and an individual State should no more have the right to 
charter a bank than it should have the right to establish its own 
system of coinage. You will observe, from a reading of the weekly 
statement of the New York clearing-house banks, that national 
banks uniformly report a reserve of 25 per cent, while trust company 
and State bank members report only a 15 per cent reserve. This 
discrepancy should not be allowed. 

There should be, in addition to commercial banks, banks of pro- 
motion, which should confine their operations exclusively to indus- 
trial and public financing. Trust companies should confine their 
business to that of a fiduciary nature and perhaps could be included 
in their business that of farm loans. There should be no central 
bank, the functions to be performed by this proposed institution 
could easily be handled through a division of the Treasury Depart- 
ment. The different currency associations that have been established 
under the Aldrich-Vreeland Act could be continued solely for use in 
times of stress. In the ordinary course of business our present system 
is admirable, and some relief in panicky times is all that is needed. 
This could be attained by an issue of asset currency, same to be issued 
under authority of the associations above mentioned and redeemed 
by the National Treasury. 

Yours, very truly, J. W. Murchison, 

Cashier First National BanJc. 



Philadelphia, May 2, 1913. 
Hon. Robert L. Owen, 

Washington, D. C. 

My Dear Senator Owen : I have asked a number of Senators and 
Representatives of the present Congress to consider three amendments 
to the national-bank act I believe essential now. They are as follows: 

1. An act to require national banks to withdraw their reserves 
from central reserve banks and to hold these moneys in their own 
vaults. 



SUGGESTIONS KESPECTING PKOPOSED CURRENCY REFORM. 63 

2. An act to prohibit national banks from making loans upon 
securities (bonds and stocks) that have not paid dividends or inter- 
est of not less than 3 per cent per annum for three consecutive years 
prior to date of loan and to limit amount of loans to 60 per cent of 
the average market price for the three calendar years preceding the 
date of loan. 

3. An act authorizing national banks to establish two classes of 
accounts, one payable in actual money when money has been depos- 
ited and one payable by credit on the bank books when a credit has 
been deposited or a note discounted. 

If these amendments are adopted many of the dangers that now 
beset the business communities will be either eliminated or modified. 
I would like much to know what you think of them. I hope you will 
be able to support them. 

I remain, my dear Senator Owen, 

Very truly, yours, Wharton Barker. 

ToPEKA, Kans., May 6, 1913. 
Hon. George P. McLean, United States Senator, 

Chairman CorriTnittee on Banlcing and Currency , 

Washington, D. C. 

Dear Sir: I inclose an article I have written on '^The railroads as 
a basis for currency issue," which I wish to call to your attention. 

As you, of course, know, the great difficulty in regard to a currency 
issue has always been to find a foundation value on which to rest, and 
heretofore this has been a combined intrinsic value and a credit — 
sometimes public, sometimes private. 

If I understand the present trend of the currency agitation, the 
bankers of the country are being looked to for the purpose of furnish- 
ing the capital or value to support the proposed currency issue; but 
in this I may be mistaken, because the meager accounts accessible 
are, perhaps, insufficient to enable one to form a correct impression. 

Some value or valuable thing must be segregated for this purpose; 
then why not the railroads, for the reasons stated in this article ? 
Yours, very truly, 

A. A. Graham, Attorney at Law. 



THE RAILROADS AS A BASIS FOR CURRENCY ISSUE. 

The railroad magnates, having expressed themselves as now no 
longer opposed to the physical valuation of railroad properties as a 
basis for taxation and rates of charges, or to their Government owner- 
ship, I assume there will be no objection to what I propose. 

I propose the employment of the railroad properties of the country 
as a basis for our monetary system, particularly for our currency 
issue. I select these as the best subject for the purpose, because the 
most uniformly distributed as to population and wealth, and also 
because their physical value bears a constant relation in amount and 
fluctuation to the prosperity or adversity of the country at large. 

Let our Government take over the railroads at their physical 
value and use this as the basis for issuing an exclusive currency, 

2736—13 5 



64 SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

restricting the coinage of silver and gold and retiring all specie except 
as needed for the settlement of foreign balances. This would dimin- 
ish, not enhance, the price of gold to us and give us that much more 
advantage in conducting our foreign trade. 

Under such a system pa3^ment for the railroads by the Government 
would become a matter of issuing currency, in effect, and, in fact, 
bonds to circulate as a common medium of exchange among the 
people, and one in possession of such currency might, in a most 
important sense, consider himself a part owner in the railroads. 

The railroads, thus employed as a basis for currency issue, would 
replace with an active, profitable property or business the '^dead 
weight" of a Treasury reserve on which to float silver and gold cer- 
tificates; would eliminate the difficulty of maintaining this reserve, 
as well as the investments or '^dead pledges" of the national banks 
in Government bonds as security for the issue of that currency, thus 
keeping this wealth in the country actively employed instead of 
hoarded up in Government vaults. 

A very great advantage also to be derived from such a system 
would be the elimination of the national banks, although always an 
aid, yet still always more or less a menace to our Government; but, 
perhaps the very greatest advantage would be the removal of money 
irom the speculative market, from the control of the bankers and 
trusts, as well as the providing of an elastic currency automatic to 
the varying conditions of trade. 

That the total physical value of our railroads is too large to float 
dollar for dollar the currency of the country is no objection, but a 
very great advantage, because a certain percentage of this value 
only should be employed from time to time as necessities require, 
leaving the remainder to furnish a guaranty against money strin- 
gencies, of which we have lately heard so much and the cause for 
which has been so variously stated. 

With the railroads as a basis for currency issue, the value of money 
would increase with their increase and decrease with their decrease, 
thus accomplishing what would seem quite impossible — a reversal of 
the present course of values as respects money founded on the price 
of the precious metals. 

At present, when money is most needed, the price is highest, and 
lowest when least in demand, thereby increasing inequalities instead 
of maintaining proper equilibrium. 

The trouble seems to me to have been an attempt to measure 
ever-changing, kaleidoscopic, and fitfil fluctuations in values by 
applying a fixed, or, at best, the least changeable .^andard — gold. 
This error is doubtless due to the fact that our measure of dimen- 
sion, of capacity, of weight are by stable and arbitrary standards, 
overlooking, as we do, that the measure of a changeable quantity, 
as value, should slide in a corresponding scale or, in a manner, run 
parallel. Railroad values meet this requirement. 



New York City, May 7, 1913. 

Messrs. Hitchcock, Owen, Weeks, Shafroth, and Bristow, 

Washington, D. C. 

. Gentlemen: The writer, a native of the State of Missouri, and who 
has recently returned after nearly 30 years' residence in foreign coun- 



SUGGESTIONS EESPECTING PROPOSED CURKEXCY EEFOEM. 65 

tries, principally South American, having extensive knowledge on 
foreign commerce, finance, and currency, etc. 

Since my arrival I have been following the proceedings at Wash- 
ington of the currency and Money Trust inquiry with great interest. 
I find that after perusing these voluminous records they do not 
locate the mahgnant currency iUness which is the cause of the 
Money Trusts and other evils that are detrimental to the interest of 
the whole United States (barring the bankers) and has caused much 
suffering for years. 

There was only one intelligent declaration disclosed in this extraor- 
dinary hterature and consisted of perhaps two lines, it coming from 
]VIr. Davidson, manager of the house of J. P. Morgan. He touched 
on the real causes that beget Money Trusts, as he is an authority and 
certainly does know. As for the balance, it reminds me of the game 
children play of ^'hide and seek." In theh play, when they are near 
the hidden object, they will cry out ^'hot" and if far away they cry 
^'cold." So I can intelligently say that up to so far as the commis- 
sion have gone very httle real information has been unearthed and 
are still very cold and far off from their objective point. 

The motive that prompts me in taking the liberty in addressing the 
honorable Senators was through a telegram from Washington making 
it known that the Banking Committee of the Senate were about to 
send out a list of 30 questions addressed to bankers and economists 
about where and how the Nation's currency system is at fault and what 
remedies are needed. So upon this invitation I thought I could be 
permitted to offer a timely suggestion. 

Pardon me for suggesting that as regarding the bankers you might 
as well ask information from the distillers and brewers on proposed 
prohibition legislation, or ^'mine uncle.'' You would get as much 
information, and what little you got would be misleading, and you 
could hardly or naturally expect them to give the good thing they 
got away, as their mstitutions are not run on the eleemosynary or 
easy-money plan for the benefit of the public, as to make known 
their artful ways would damage their business. All the information 
you would get would be a jumble and evasive, and you would be where 
you started at the end — in fact, worse off if you followed their sug- 
gestion and acted you would get a rehashed edition and continuance 
of the present iniquitous and inconceivable currency system, with a 
few modifications, giving httle or no relief. The principles of banking 
are to contract the currency and get as high a rate of interest as 
you can. 

The situation calls for heroic measures, and fortunately we have 
them at hand — no alternatives nor subterfuges needed, as the old- 
time remedies are the best. The bankers have had a ''dead cinch" 
on the vital interests of the people of the United States, and have been 
the greatest obstacle to the country's development, and its home and 
foreign trade; by their opposition and stand-pat conservation policies 
the country has been deprived of the banking S3^stem it should have 
had years ago. 

I can demonstrate and prove to any intelhgent person in finances 
or banking and show them where there are hundreds of millions oi 
dollars lost annually that would be sufficient to pay the national 
debt in a few years, and what has already been lost would have 
paid it over many times. It is shocking, this neglectful and careless 



66 SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

manner the currency system has been managed by the Government. 
The national-bank act at best was a war measure but has long out- 
grown it. 

I can also show you in a hundred ways where the American people 
are the worst flimflammed people in the world for its size and re- 
sources. Only the favorite few, who know how to play the game^ 
are getting the benefits. No other country in the world could with- 
stand and prosper with such an abortive system. It is only the 
great vitality of its people and its great natural resources that keeps 
it from defaulting. 

In it you have the direct cause of all the frequent and unnecessary 
panics. Through such an inefficient system the country is liable to 
be thrown into a panic any day, and notwithstanding its favorable 
and actual conditions for prosperity — this panic from altogether 
foreign causes. We have absolutely no means to protect ourselves 
against these financial crises brought on mostly by the errors and 
speculation of foreign countries. The United States to-day is the 
gold treasure box for the whole world. It is at their disposal to right 
themselves when they get into financial trouble and want gold, as 
they can get it here easier than any place in the world, as we have 
no means to protect ourselves against this drain and withdrawal as 
all other sensible nations have provided for, and take the necessary 
precautions in raising the rate on gold when the situation requires 
it, hence the panics — the country thrown full of temporarily unne- 
gotiable securities that have been received in exchange for our ^old 
and our currencj^ on the verge of inconvertibility, and what little 
gold there is in circulation is speedily locked up in vaults and hard 
to get at any price. These periodical shocks from foreign causes 
costs the American interest untold millions of dollars. It is an ex- 
pensive experience for us, and should be guarded against, as self- 
preservation is the first law of nature. We Americans don't seem 
to comprehend this fundamental law in our currency system. 

We had the gold, but it is gone. Presto, and we ourselves are in 
a fix because we did not have intelHgence enough to hold on to it 
when we had it ; the result being that we are the worst sufferers, who 
did not have anything to do with the other people's gamble. Wit- 
ness the panic of 1889, caused by the Europeans gambUng in the 
Argentine and Australian lands, they going so far that the insur- 
ance companies, banks, etc., had staked their legal gold reserves. 
Hence the scramble and drain on the United States as the easiest 
place to draw it from. 

It can be said that the United States has the cheapest gold and 
dearest paper currency in the world, for this is the market where the 
foreigners apply for it when it can not be had any place else. 

With the naked facts as they stand out manifestly, it must be 
admitted that the masses of the American people do not as yet 
know how to make a good convertible currency dollar for their com- 
mercial requirements, and this when they have all the necessary 
material or bullion, you may say, at hand, and in a country where 
so many dollars are needed for its development. If they did, they 
would not tolerate for a single day such a monstrosity of a system 
that now prevails. It is certainly a reproach, when otherwise they 
could have three or four times more and better convertible currency 
for its business expansion and insure against panics and the evils 



SUGGESTIONS EESPECTING PROPOSED CUERENCY REFORM. 67 

of the Money Trust. It really irritates me, makes my American 
blood boil, to find on my arrival home that there could exist in this 
land such sublime stupidity regarding currency matters, at this age 
and in a country where every mother's son devotes all his time and 
energy in chasing after the dollars. If it was not for the seriousness 
of the matter I would consider that the present system is the most 
gigantic joke of the times on our countrymen, as it hobbles, tethers, 
and, you may say, throttles its commerce and agriculture. 

Economists will say that there can only be so much, more or less, 
per capita for the currency of a country. This theory has been long 
exploded, as there never can be too much good convertible money for 
its commercial needs, and the United States people need all of its kiad 
it can get for its development and trade expansion; there can not be a 
plethora. 

It may startle you to know that the United States merchants and 
manufacturers can not comply with the universal tradiag conditions 
or terms. Why? Simply, they have not got the currency to do it 
with, nor the proper banking facilities to handle home and foreign 
commercial paper. Hundreds of millions of dollars have been lost in 
trade through this inability and neglect. You can offer in the United 
States any amount of the highest rated foreign commercial paper in 
exchange for merchandise and these notes will be rejected, and until 
this abnormal condition can be corrected we must never talk of for- 
eign trading, as good commercial paper is the real basis of the cur- 
rency of the world. The United States does business in a peculiar 
manner; that is, mostly on the C. O. D. plan. We deduct from this 
that foreign commercial paper is more secure than our home paper, 
as foreign merchants are not in business one day and out the next. 
(See Dun and Bradstreet.) 

The situation is too provoking. Here we are striving after foreign, 
and especially South American, trade. We will never get nine-tenths 
of it, as we positively do not know how to go about it, as our system 
makes it prohibitive and impossible to trade outside our borders on 
the conventional terms. Ours are cast iron and unbusinesslike. 
It's like trotting about in a bushel measure. Our present foreign 
trade is different from that of any other country in that it consists of 
merchandise that can not be purchased anywhere else, specialties, etc. 
So the foreigner must conform to our C. O. D. rules. He keeps, a wide 
berth between our markets and himself when he can purchase else- 
where. Our merchants and manufacturers realize that there is some- 
thing lacking, and they can not just locate this lackness. In trying 
to do so now they are going about it in the wrong way. Forests of 
timber have been used for the necessary paper treating on the subject. 
Talking about the necessity of steamship lines, banks, etc., this is all 
nonsense, as you must get your trade first, then steamship and bank- 
ing facilities follow, and for our trade to get outside we must neces- 
sarily follow and conform to outside trade terms. We can sell the 
goods at present, but can not deliver them on satisfactory terms to 
the purchaser. There is a way to correct these diflB.culties that will 
be recognized and approved of, once I refresh your memory, as it will 
not depart from the well-known sound financial principles as old as 
the hills. 

There is a chance and opportunity of a lifetime for a Senator or 
Congressman to make himself famous as an able statesman and 



68 SUGGESTIONS BESPECTING PEOPOSED CUEEENCY EEFOEM. 

financier by taking up the banking question where Andy Jackson 
butted in in his administration and made a mess of it with his theories 
similar to 16 to 1, with his wildcat, red-dog sand banks. After this 
dissertation introduce a project of law of which I will send points for 
a draft copy. This bill will fit the situation to a nicety and dovetail 
with the present national and State banks; there can not be any 
opposition. If any it will be from the loan sharks, representing about 
1 per cent of the people. They can be easily silenced, as they have 
been well fed by the people for the past 60 years or more. 

Regarding Andrew Jackson, he was undoubtedly a very great 
statesman and soldier, but knew nothing about elementary knowl- 
edge and principles of finances. Later soldier, statesman, and 
President committed the same errors, and this is the cause that we 
have so -deplorable a banking system. 

The remedy is purely legislative. It has been said that you can 
not make a dollar by an act of Congress, but if you have the necessary 
bullion and the bankable securities you can easily make $5 and more 
currency out of $1 bullion by proper legislation and banking. 

It seems to me the questions to be proposed or propounded to the 
bankers and economists should be reduced to this simple inter- 
rogatory : 

Are we, the United States, having the amount of convertible currency that its 
financial resources entitles it to have? 

If not, why not? 

Are our merchant manufacturers and exporters getting their fair share of trade in 
foieign markets? 

If not, why not? 

Are our agriculturists getting the proper credits they are justly entitled to at rea- 
sonable interests and upon adequate security? 

If not, why? 

The replies to these questions would bring the solution of the 
greatest problem that now confronts the United States, and, acted 
upon, would bring about a permanent, unbounded, and lasting 
prosperity. 

In conclusion, I would be pleased to go to Washington at my own 
expense and explain and prove to your satisfaction that there exists 
unpardonable errors in our money system and have existed for years, 
and with the immense amount of brains that have been sent to Wash- 
ington from the different States for years it is remarkable that these 
grave and serious errors have never been corrected. They un- 
doubtedly have been long since discovered, but it seems that the 
financial doctor and statesman had not arrived on the scenes to be 
able to properly diagnose the case and prescribe the remedy. 

Hoping you will pardon me for encroaching on your valuable time 
and my forwardness in addressing you in this manner, I remain. 
Yours, respectfully, 

J. S. MacGinnes. 

N. B. — The very best business of high-class approved enterprises 
and public utilities are constantly being offered in this country from 
abroad, but never attract any attention. It is a deplorable waste of 
time and money to attempt to offer anything, no matter how good. 
If England and other countries rejected such high-class business as 
is done in the United States, Europe would soon starve to death, as 
these enterprises call for the export of enormous amounts of manu- 
factured materials. We have not the wisdom of the French and 
German bankers. 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 69 

May 8, 1913. 
Hon. Thomas R. Marshall, 

Vice President of the United States. 

Dear Sir: I have your favor of the 3d instant, and am gratified 
that you have found anything in my article to commend. This whole 
matter of utilizing the clearing houses, each representiag the united 
power of all banks in a given city or section with authority to issue 
certificates on proper occasions and to enter into other contracts rep- 
resenting the joint and several obligation of all its members, and to be 
under the control of acts of Congress and regulations of the Treasury 
Department, is so simple that I am surprised that the plan was not 
adopted long ago. To understand the advantages that would follow 
from its adoption, you have but to apply the suggestions to your own 
affairs in your own city. As a business man at Indianapolis you must 
carry an account in one of its banks on faith, but you have no assur- 
ance that that bank wUl not suspend at any time to the utter con- 
fusion if not ruin of your business. Every other business man in that 
city is in the same situation. Your feeling is one of more or less 
doubt at all times, but it quickly becomes one of crushing anxiety 
and dread as soon as a wave of business depression, with its always 
attendant rumors about banks, runs across the land. But let all the 
banks in that city unite their forces in a clearing house and through it 
guarantee the deposits in every member bank with the authority to 
issue on an hour's notice certificates good for the settlement of 
balances among all members until redeemed, and you and all other 
depositors in those banks would have no anxious thought, knowing 
that you can neither lose a dollar nor be without its use for a day 
unless and until every bank in that city fails — a financial impossibility. 
And you would all feel greater security with those banks holdiag 
reserves of 5 per cent of their deposits than 3^ou can now feel with the 
banks holding reserves of 25 per cent. 

To-day the banks of Indianapolis as a whole are insisting that you 
and other depositors trust them absolutely with your money when 
you become depositors, with no right to supervise their conduct or to 
inquire into their doings, beyond the wholly inadequate Government 
examinations. Why have not the depositors the right to demand 
that the banks as a whole shall demonstrate that they have the same 
confidence in one another that they ask the depositors to have in 
them ? The only way that the banks can demonstrate this confidence 
in one another is by arranging through their clearing house to guaran- 
tee the depositors against loss, and thus prove that they are justified 
in asking the depositors to trust them with their rdoney. 

Again, suppose the business situation at Indianapolis at a given 
time is such that more money than is then available can be used for 
three months or a year. If you have money to invest for self or a 
client, can you think of any kind of security having its origin in any 
institution or business connected with Indianapolis on which you 
would rather advance money than a clearing-house certificate run- 
ning to a given date and representing the joint and several obligation 
of every bank in that city ? 

Again, if the Government is to make use of some kind of securities 
or commercial paper, other than Government bonds, as a basis for the 
issue of currency (temporary, presumably) to circulate as money, is 
there any kind of such securities or paper that is the equal of clearing- 



70 SUGGESTIONS RESPECTING PEOPOSED CURKENCY REFORM. 

house certificates, bearing in mind that, when a clearing-house 
certificate is issued, it must be paid in full or else every stockholder in 
each of the banks in that clearing house must lose his entire invest- 
ment ? 

The bankers in every financial crisis resort to the issue of clearing- 
house certificates to stay a panic. The trouble is, they wait till after 
the panic arrives and threatens destruction before resorting to them. 
They should be always prepared to use this means, in connection with 
cooperation and clearing-house guaranty of deposits of all member 
banks, and thereby prevent those conditions which give birth to 
panics. 

I have already made this letter longer than I intended, but it 
would be an easy matter to write a volume on this subject. I intend, 
so far as I have ability, to follow your suggestion to press the points 
which I have advocated in my article in the April Banking Law 
Journal, but the whole matter will depend upon Congress ; for what- 
ever is done must be in accordance with acts of Congress and regula- 
tions of the Secretary of the Treasury. I am absolutely convinced that 
the people of this country have a right to and do expect legislation by 
Congress that will provide a banking system which will assure them 
against the loss or tying up of their deposits. They are not in favor 
of taxing each individual bank to pay losses sustained by bad manage- 
ment of distant banks over which banks so assessed have no control. 
But each clearing house can guarantee all deposits in its own members, 
because through proper committees it will exercise supervision over 
them, under such national laws and regulations as will assure the 
elimination of all incompetent and dishonest bankers, and permission 
to any number of competent and honest men to engage in that busi- 
ness. I sincerely hope that the leaders in the Senate and House, to 
whom the country is looking, will insist on the desired assurance 
against loss to depositors. 

I am sending copies of this letter to Mr. McAdoo, Senator Owen, 
and Mr. Glass. 

Very truly, yours, Murray Corrington. 



Silver City, N. Mex., May 12, 1913. 
Senate Currency Committee: 

In a speech before a peace congress a year or two since. President 
Wilson said, '^We can never have international peace until we have 
industrial peace." 

I think I can say with equal truth, and the statement is even 
more self-evident, ^' We can never have industrial peace until we have 
an honest measure of value between man and man." 

As long as the financial yardstick can be lengthened or shortened 
at the will of the men who control the money, one set of men will 
exact tribute from another set of men, and industrial unrest will 
continue to be and will increase as men learn the real cause and 
method of this form of brigandage. If we make financial reform 
that amounts to much, we must begin at the foundation. All the 
financial reforms that are now talked of simply keep financiers from 
kilUng the goose that lays the golden egg, but all of these methods 
allow them to take the golden Qgg. 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 71 

We have been taught that money is the measure of value; but 
under modern conditions and practice the following is a more accu- 
rate statement of the case: ^^ Value is the victim of money." 

Wall Street is simply a place where men who understand finan- 
cial methods meet to exact this tribute. If you break up Wall 
Street, the same thing will be done somewhere else. 

In 1896 when the whole country was studjring finances I reahzed 
the fallacy of the single gold standard. Bimetalism had been tried 
and was known to be fallible. 

The reason that ^Ir. Bryan failed was that he could not make his 
plea on a great moral basis; he could only plead for one of two 
dilemmas. 

At that time I wrote out a plan that I thought would construct a 
just measure of value (dollar). Since then I have studied it a great 
deal and am now convinced if it w^ere enacted into law it would 
produce a dollar that would be practically unchangeable in value to 
the end of time. I believe this is the reform of all reforms. If this 
can be done, it will mark a milestone on the road of human progress. 
Future generations of men wiU couple the time when it is done with 
Magna Charta, the reformation of Luther, and the birth of Christ. 

I have heard scientific men say that such a thing as constructing 
an accurate measure of value was a natural impossibility, but I do 
not believe this to be true; in fact, the great demand of the world is 
that a way must be found to do this. 

The plan I have outlined I call '^ The market-price dollar. " I think 
it will accomplish all the following essentials that are necessary in 
constructing a true and just measure of value: 

First. The dollar must be redeemable in substances of intrinsic 
and imperishable value (with aU the monopolistic water squeezed out) . 

Second. Its value must not be affected by greater or less produc- 
tion of these substances. 

Third. Its value must not be affected by hoarding or inflation 
of money. 

Fourth. The quantity of money should be just enough to supply 
the demand, and no more. 

Fifth. The value of the measure of value (dollar) must be kept in 
unison with the value of the thing measured by it. 

This latter may seem difficult to accomplish, but a little thought 
will convince anyone that it is absolutely necessary for the purpose 
in view. 

If you are interested in this matter, I will be glad to give you an 
outline of this plan and argument thereon, although the subject is so 
large that nothing but a personal interview would be at all adequate. 

I think the presentation of this as a political issue would unite all 
men engaged in productive industry, manufacturers, wageworkers, 
agriculturists, in one party as no other political issue has ever 
united them. 

Let us untie the fetters of production — production, that goddess 
from whose willing vitals are born all that we know of physical, or 
moral, or mental, or material wealth. 

Respectfully, William H. White. 



72 suggestions eespecting proposed cuerency reform. 

The Vice President's Chamber, 

Washington, May 21, 1913. 
Dear Senator: I hand you certain matters which came to me 
and which may be either of interest or value to your committee. 
Very truly, yours, 

Thos. R. Marshall. 
Hon. R. L. Owen, 

United States Senate. 



May 20, 1913. 
Hon. Thomas R. Marshall, 

Washington, D. C. 

Honorable Sir: As chairman of the banking and currency com- 
mittee of the Chicago Association of Credit Men, I am taking the 
liberty of calling your attention to the inclosed resolution which was 
adopted at our regular meeting, held on May 19, 1913, and to request 
of you your personal cooperation in supporting what I am sure is 
one of our most needed and important reforms. 

An acknowledgment of the above will be appreciated. 
Yours, very truly, 

I. D. Berg. 



RESOLUTION URGING LEGISLATION FOR A REFORM IN OUR BANKING 

AND CURRENCY SYSTEM. 

Whereas Congress has been called in extra session for the purpose 
among other things of legislating for an adequate and safe bank- 
ing and currency system, and 
Whereas it is to the interest of all of our members and to the country 
at large to have Congress pass a new system based upon the follow- 
ing three principles: Fu'st, centralization and flexibility in the 
use of bank reserves; second, elasticity of the currency; third, an 
open market for the discount and rediscount of sound commercial 
paper, and 
Whereas it is necessary to impress upon our national legislators at 
Washington the necessity of taking such action at this session of 
Congress as will give us the necessary change in our system; and 
Whereas we consider banking and currency reform to be as impor- 
tant as any legislation which might be proposed at this extra ses- 
sion of Congress: Therefore be it 

Resolved, That the Chicago Association of Credit Men will lend its 
aid wherever possible to further any legislation which will give the 
necessary banking and currency reform and also to encourage and 
assist commercial organizations and business men throughout the 
country to do likewise. 
Adopted May 20, 1913. 

I. D. Berg, 
A. G. Becker cfe Co., Chairman. 
W. G. McLaurey, 
Cashier National City Bank, Chicago. 
Dan Norman, 
Assistant Cashier Continental <& Commercial 

National Bank, Chicago, 
Banking and Currency Committee. 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 73 

Waukesha, Wis., May 22, 1913. 

Dear Senator: As I gave an address before the State Bankers' 
Association of Oklahoma on the 9th instant, I had hoped to meet you 
there and have the honor to sit down calmly and discuss banking^ 
and currency reform to the end that panics may be ameliorated, sus- 
pension of cash payments by banks avoided, and as far as possible 
keep the wheels of commerce in motion. As long as human error 
exists these are all we can accomplish. 

In your letter to the Oklahoma Bankers' Association, I believe you 
summed up correctly the defects of our banking system, or more cor- 
rectly, our currency system. To my mind the following covers a 
digest of the case: 

First. Preserve inviolate our independent banking system, but 
improve State banking laws wherever they are lax. Most States now 
have good laws. 

Second. Our general banking functions are well cared for now. 
Interest rates are naturally governed by accumulated surplus capital, 
the element of development and risk. Older sections where capital 
has accumulated and risk is limited have easier money than newly 
developed sections. Oklahoma in its wonderful advance has lowered 
interest rates 2 to 4 per cent in the past 10 years. The next 10 will 
probably see a 6 per cent rate, because of accumulation of surplus 
capital in excess of developing requirements. I have been through 
that experience in Wisconsin. 

Third. As to the issue of currency by national banks, it is an 
unnecessary function of banking. State and all other banks do 
business without issuing currency. National-bank currency should 
be gradually retired and let gold, automatically under the Gresham 
law, fill the void. Of course, the Government should care for the 
United States 2 per cent bonds as an act of pure justice, so no loss 
on them accrues to the banks holding them. 

Fourth. As the pyramid of bank credit is now as high, if not higher, 
than it ought to be, as the loans and discounts and bonds held by 
all banks exceed 18,500 millions of dollars, and as but about one- 
fourth of this 18,500 millions of dollars is in live commercial paper 
and the other three-fourths is slow paper — mortgages, and bonds — 
I insist in normal times practically all ^4ive paper" is now promptly 
cared for and, further, all banks needing rediscounts can now obtain 
them through their city-correspondent banks, if entitled to them; 
therefore, no further facilities are needed in normal times to care for 
us. I assert that banks that can not care for themselves in times 
of peace have no right to exist. 

Fifth. When in the fall interest rates get harder than when easy 
money prevails in the summer, that is the natural barometer which 
helps check overexpansion of credit. The buoyancy of our exuber- 
ant American spirit needs this check valve to insure conservatism. 
A perfect money level attains neither with individuals, corporations,, 
governments, nor banks. If at some periods of each year we have 
idle funds, conservatives will not, in any line of business, chafe under 
it but await reasonable demands in due season. To absolutely stop 
speculation is, alas, beyond the power of man. To issue extra 
currency whenever a higher interest rate prevails is to feed the fires 
of speculation. Then a checkrein is needed to curb the speed. I 
repeat, issuing currency is not a necessary banking function and the 



74 SUGGESTIONS RESPECTING PEOPOSED CUREENCY EEFORM. 

issue of currency by banks generally the world over, except in small 
quantities by central banks as balance wheels, is practically totally 
abolished (Canada excepted, but she is more than half asleep and 
we can not adopt her cream skimming, monopolistic banking system.) 

I assert if some method to mobilize a part of our present cash 
reserves into one pot, to loan to all solvent parties at high interest 
rates when trouble threatens, through rediscounts for cash, our menace 
of cash suspension by banks would melt away, and we would limit 
troubles as far as it is within human power to accomplish that end. 

In normal times let us stand on our own bottom, in abnormal 
times reasonably penalize our relief; and we will then be taught con- 
servatism. 

To sum up : 

First. With slight amendments leave our splendid, independent 
banking system alone. 

Second. Gradually cut out the special privilege to national banks 
to issue currency and automatically under the Gresham law gold 
will fill the void from the world's generous stock. 

Third, Provide a large reservoir of cash out of present reserves, 
which will put out a fire in any section and refill again under a heavy 
tax. This will minimize distrust in all sections because if they all 
know a big relief reservoir is at hand then general confidence is not 
shaken. General loss of confidence spells panic. 

I again regret you were not at the Oklahoma convention, as it is 
far better to carefully discuss in all their bearings these points, which 
a tentative brief may not clearly convey as to their full meaning. 

I mail you herein a copy of my Oklahoma address, which I hope 
you will do me the honor to read. I am assured by many prominent 
bankers it made a profound impression among the Oklahoma 
bankers. 

I note that a series of questions are sent or to be sent by your com- 
mittee to bankers requesting their views. May I have the honor to 
receive one ? 

Begging your pardon for so long a communication, I offer the onl 
apology that my 50 years of banking experience teaches. I want to 
see the best banking systems in the world perfected and the one 
bugbear of general cash suspension by banks eliminated, and my 
labors in that behalf will close. 
Very respectfully, yours, 

Andrew J. Frame, 
President Waukesha National Bank. 

Senator Robert L. Owen, 

Washington, D. C. 



The El Paso National Bank, 

Colorado Springs, Colo., May 22, 1913. 
Hon. R. L. Owen, 

Senator from Oklahoma, Washington, D. C. 
My Dear Mr. Owen: You may recall me, as I have met you 
several times at Muskogee. I am a brother-in-law of Mr. W. T. 
Hutchins, and I am well known to all of your bankers. 

This letter is simply to appeal to you to give immediate consid- 
eration to an amendment of some suitable character for our banking 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 75 

laws. The currency is in a state of general depression all over^ and 
there should be without the least delay a currency bill enacted that 
will give all the banks in the country, both State and national, a 
chance to secure elastic currency, if need be, against bills receivable 
of first class. I have studied this question for years, and the inelas- 
ticity of our note circulation is of such a character that a stringency 
inevitably is the forerunner of trouble, and for the sake of the pres- 
ent administration, and the country at large, we can not permit any 
delay in this matter. 

Thanking you for troubling you, and with very high respects, I am, 
Yours, sincerely, 

C. C. Hemming, 

President. 



The Cotton Exchange Bank, 

Leedey, OJcla., May 23, 1913. 
Senator Owen, Esq., 

United States Senate, Washington, D. C. 
Dear Sir: I beg leave to ask you to use your influence in having 
brought before the special session of Congress the currency reform 
bill, as we feel that unless somethmg is done immediately in this 
respect it is apparent that the inevitable end will be disaster unless 
relief is given. 

We feel that prompt means should be taken to bring about a 
revision of our monetary laws at the present session of Congress. 

Thanking you in advance for your kind consideration of this 
matter, with best wishes, I remain, 

Yours, very truly, , Edwin C. Ruff, 

Vice President. 



Fayetteville, Ark., May 2 If, 1913. 
Hon. Robert L. Owen, 

Washington, D. C. 

Dear Sir: If you will pardon the intrusion of a country doctor, I 
would be glad to make a suggestion to you as a member of the Finance 
Committee, as this committee will have much to do with the currency 
reform our Democratic President will soon bring about. 

I write you the more gladly because you are my nearest neighbor 
and because you have taken such an interest in a national health bill, 
the legislation so much needed for our people. As you well know, 
there has been no coin struck in our mints lor years that represents 
the unit of our money system. When I was in the mint at Philadel- 
phia a few years ago, they were coining silver dollars for the Filipinos, 
but no dollars for our people. Not that I think it is best that we 
again coin the silver dollar of our daddies, but I do think we should 
continue to coin a dollar, the unit of our money system, and make it 
something better and handier than either gold or silver. And this 
could be done by making a bimetallic dollar — a metallic dollar that 
none of the people in any section of the country would shy at. 

I would suggest that this dollar be made of 11.7 grains of pure gold 
and 188.1 grains of pure silver and 22.2 grains of an alloy of aluminum 



76 SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

and copper. Such a dollar would contain 0.09 grain more of gold and 
2.47 grains more of silver than the dollar now in use. Such a dollar 
would weigh 222 grains, about half the weight of the silver dollar. 
The alloy of aluminum and copper could be so proportioned as to make 
this dollar 33f millimeters in diameter and 2| or 3 millimeters thick. 
The present silver dollar is 37 millimeters in diameter and 2^ milli- 
meters thick, the silver half dollar being 30 millimeters in diameter 
and about 1^ millimeters thick. It would be more difficult and less 
profitable to counterfeit such a coin. 

I believe a dollar of such intrinsic value and dimensions would add 
something to the currency reform our good President is endeavoring 
to bring about and a little more glory to the present Democratic 
administration . 

Yours, very truly, H. D. Wood, 

Physician. 



St. Louis, Mo., May 24, 1913. 
Hon. Robert L. Owen, 

United States Senate, WasJiington, D. C. 

Dear Sir: We want to urge upon you the importance of imme- 
diate action looking to the passage of a new currency and banking 
law. The newspapers state that a great many manufacturers are 
claiming that the fear of the proposed reduction in the tariff is the 
cause of the slackening tendencies in business. In our opinion, the 
fear of the tariff reduction is not having nearly as much to do with 
the slowing up of business, as is the fear of a panic or at least very 
high rates of interest during the crop-moving period. 

You must also take into consideration the fact that a certain ele- 
ment would not seriously object to having something occur that 
might reflect on the Democratic administration. We do not mean 
by this that anyone would deliberately do anything that would 
precipitate trouble, but they might not undertake to prevent trouble 
should they see it coming. 

The Democratic Party owe it to the country to so fortify and safe- 
guard the situation by passing a sound and conservative banking 
law as will effectively restore confidence and encourge merchants 
and manufacturers to push their business, rather than to curtail it, 
as they are now doing. We do not believe Congress should adjourn 
until a currency law has been passed. With the tariff bill passed 
and out of the way, and with a banking law, such as would inspire 
confidence, we believe that you would see the greatest industrial 
development that this country has ever experienced. 

Banks are advising their customers to go slow and to be cautious, 
and under the present situation we feel that they are right, that no 
conservative business man will under the present conditions under- 
take to expand his business, and, as a general proposition, a business 
that is not increasing is generally decreasiug. 

While admitting the great importance of tariff reform, currency 
I'eform is of still greater importance. 
Yours, very truly. 

International Shoe Co., 
J. Johnson. 



SUGGESTIONS RESPECTING PEOPOSED CUKEENCY EEFOEM. 77 

Indianapolis, Ind., May 24, 1913. 
The Senate Committee on Banking and Currency. 

Mr. Chairman: I wish to submit the followdng paper to your 
committee as being the correct solution of the currency problem. 
The solution is based upon the discovery of certain laws or value that 
determine the following propositions in relation to the currency: 

First. The value of labor, both past and present. 

Second. The value of money based upon this value of labor, the 
value of cash money being based upon living labor, and the value of 
credit money upon the labor of the past. 

Third. A standard price, based upon the equal relation between the 
value of labor and the value of money. 

Fourth. The quantity of money based upon the equal relation 
between the quantity of labor offered for sale and the standard price. 

Fifth. The circulation of money, the circulation of cash based upon 
the time required to replace the store of consumable goods, the circu- 
lation of credit based upon the time to replace the store of accumu- 
lated w^ealth which fixes a standard rate or interest. 

Tlie money question. — The failure to solve our social problems must 
be traced to the fact that all theories of finance are built upon a false 
foundation, and to the fact that correct conclusions are not possible 
unless we have the true foundation upon which to build them. The 
false foundation which has always been accepted in building theories 
of finance is that labor in the cause of value, while the true founda- 
tion is exactly the reverse of this, namely, value is the cause of labor, 
which is self evident. 

When financial writers assume that labor is the cause of value, they 
confine the cause of all social activity to the work of living laborers, 
and neglect to take the enormous wealth from the past into considera- 
tion as the principal cause of civilization. 

Wealth in our cities, in farms, factories, and railways has no value 
in present labor, and can not be distributed to the present generation 
if labor is to receive wages limited by the cost in labor of its present 
product, and gets no wages on account of accumulated wealth. The 
wealth we inherit from the past represents an enormous saving in 
money that present labor is expected to share without having to 
work for it, and which is intended to relieve the present generation 
from saving, and from being denied any of the comforts of life which 
our markets afford. 

All accumulations of wealth to individual owners are expected to 
be paid for with the money earned by past labor, contributed to us 
without cost and represented by credit money. The owners of wealth 
have a power of inflating the volume of cash with bank checks that 
have been earned by past labor, and which living labor may be 
called upon to earn the second time by being compelled to redeem 
bank checks with the money they get from the commodity market. 

When labor fails to get its due proportion of bank checks as an 
increase in wages, it must take half the cash it receives from the sale 
of goods to cancel bank checks for the benefit of capital, and do this 
by paying twice the cost of the goods it consumes. The circulation 
of money must include both cash and credit, the two volumes must 
unite into one to create a selling price of twice the cost, so as to 
include credit money in the circulation. After goods have been sold 
the two volumes must be separated, by taking profits from prices 



78 SUGGESTIONS KESPECTING PEOPOSED CURRENCY REFORM. 

above cost, and take them from the inflated money and not from 
wages, and then spend profits to buy capital at twice its cost. 

The claim of capital upon labor is based upon its supplying factories, 
tools, buildings, railways, and the like, which labor may use and need 
not produce, but the use of which saves all the time it would now 
take to produce such capital and saves all the money represented by 
its cost. 

Capital is expected, by laws of nature, to put $2 of past-labor 
money into circulation as a part of every $4 spent for goods, and 
labor, in being paid $4 for goods, is expected to get $2 in credit money 
from the capital market and $2 in cash from the goods market and to 
pay prices above cost with money having no cost in present labor. 
In the natural payment of wages labor is expected to use one of the 
credit dollars to pay that part of the price of goods which is above 
cost and use the other credit dollar to buy wealth on its own account. 

When credit money is allowed to get around the wage fund and 
circulate between the owners of property and banks, labor will fail 
to get any part of the bank-check circulation in wages and will be 
compelled to use one of its hard-earned cash dollars to cancel a dollar 
of credit for the benefit of capital and allow the other credit dollar 
to go as unearned wealth, and instead of labor getting $4 in wages 
and having $3 for its own benefit it gets but $2 and has $1 for its 
own benefit, and thus loses a wage fund three times as great as it is 
paid. 

There is no escape from the power of capital, which is nothing more 
than the power of past labor, and to assume we may now escape the 
power of capital by competition is to assume we have all the years of 
the past at our command to build new farms, towns, cities, and rail- 
way systems on free land with no help from the wealth we now 
possess. 

The competition we demand, and the competition the laws of nature 
would establish for our benefit, is the competition of an enormous 
quantity of past labor money competing for present labor so as to 
secure profits and advance wages from the circulation of bank-check 
currency. A house, for example, is furnished a laborer and his family, 
or he would be without one until he built it himself, but dwellings are 
not expected to be charged up to laborers as though they had to 
build them. Laborers are expected to get houses, store buildings, 
factories, railways, and all other capital as a contribution from past 
labor without cost by getting an increase in wages in past-labor 
money to cover the charges for rent, interest, and profit that capital 
must have. 

Capital is expected to be paid for by an inflation of past-labor money 
represented by the bank-check circulation, and this credit money can 
only get into circulation by increasing the selling price of goods to 
twice the cost price, and it can only remain in circulation by buying 
capital at twice its cost of production. 

Labor can not be defrauded by this power of capital to inflate the 
currency as long as the demand and supply of money balances; as 
long, in other words, as the money spent in buying capital and goods 
each year is balanced by an equal sum paid in wages of every descrip- 
tion the same year. 

Time plays an important part in this balance of the demand and 
supply of money, because nature allows a year's time in settling the 
accounts in the capital market and only allows 60 days' time in settle- 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 79 

ments in the commodity market, and interferences arise between 
demand and supply on account of this difference in time. If there 
was but one quantity of money its time of circulation would not be 
so important, but as there are two distinct circulations, each having 
its own time of circulation, a conflict arises between demand and 
supply in every market in the civilized world. 

The time given the quantity of cash to make a complete turnover 
is 60 days, or six times a year, while the time given the quantity of 
Credit is one year, and as a result cash must move six times as fast as 
credit, which it can not do, or the quantity of credit must be six times 
as great as the quantity of cash to circulate equally with cash in the 
same market. Any deficiency in the cjuantitj^ of credit money will 
be equalized by extending its year's time of circulation to as many 
years of the future as the accumulation of wealth represents years of 
time saved by past labor, when the limit in this extension of credit 
will be reached by the limit in debt. 

To the superficial observer the circulation of bank checks may not 
seem important, bank checks seeming to be money peculiar to the 
rich, and the fact thus escapes him that because bank checks have 
become the money peculiar to the rich we have our labor and financial 
troubles. The total bank-check circulation in our country should be 
no less than $15,000,000,000, but this quantity has never been allowed 
to exceed $5,000,000,000 on account of the necessity of buying land 
in advance of building. 

To restore the equal demand and supply of money all debts that 
vainly promise to return impossible money in the future must be made 
to return the promised money to the present circulation, by changing 
debts into credits payable on demand, and thus restore $10,000,000,000 
of dormant bank deposits to active circulation by making them a part 
of the wage fund. 

The remedy. — Every corporation must be required to protect its 
own security holders by creating bank reserves that will make all of its 
securities payable in credit money on demand, the same as banks now 
maintain cash reserves to make all deposits payable on demand, and 
the same as insurance companies maintain a reserve to protect policy- 
holders. 

How simple is the final solution ? We merely ask each corporation 
to create bank reserves for the sole benefit of its own securities; to 
redeem them on demand at a standard of value fixed by a rate of 
interest, and at the same time the corporation will be relieved from 
the heavy load of debt it can not pay. The reserve will take the place 
of a sinking fund, which, instead of growing in quantity to retire the 
debt, ^vill stop where it will provide the reserve that mil make the 
debt payable on demand, to be again sold to replenish the reserve. 

The intimate connection between property in land and the circula- 
tion of credit money has never before been called to the attention of 
reformers, and a simple change in the relation between money and 
land will solve all our social problems by giving us a cash market 
where all property except property in land will sell for its value in 
money on demand. 

Henry Rawie, 

Consulting Engineer. 

Indianapolis, Ind. 

2736—13 6 



80 SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

Texas City, Tex., May 24, 1913. 
Hon. Mr. Owen, 

Chairman Committee on Banlcing and Currency, 

Senate Chamber, Washington, D. C. 

Dear Sir: Will you pardon me for making a suggestion derived 
from my actual experience with country banks in this section? 

As this sheet indicates, I am the cashier of a national bank in a 
town of about 3,000 people — just such a bank as fills an actual 
want in thousands of communities like this all over the country — 
the kind of bank which is never responsible for financial stringency, 
but is the longest sufferer from those panics that almost periodically 
sweep over the land. 

The wealth of the people in such districts is not appreciable when 
compared with the great fortunes owned or controlled by some 
people in the cities ; they have not invested in stocks and bonds and 
such securities; but their entire wealth consists in lands and houses 
and livestock. 

((Like those in the city, our citizens sometimes have occasion to 
borrow money, and they are willing to offer security to the lender, 
but not happening to have stocks and bonds and commercial paper, 
they can only offer their lands and their cattle (in those States where 
chattels are legal) ; and, as you know, a national bank can not 
accept land as security. While it depends uj3on these very people 
for its deposits and patronage, it can not reciprocate the favor by 
extending secured loans. 

When the bank examiner was last with us he was particular to 
inquire if we had any real estate security. Coming across a certain 
piece of unsecured paper, he asked if the maker had any land, and 
upon our reply in the aflBrmative, he appeared to be satisfied that 
the paper was good. Now, if we should be forced to get judgment 
against this party, we would certainly get execution upon his land 
(u, forsooth, he has not sold it in the meanwhile, or moved his house 
upon it and called it his homestead). A foreclosure of a mortgage 
or a note secured by a deed of trust would eventuate in the same 
thing exactly — getting our money out of his land. But the differ- 
ence is that if in the first instance we lose, we have exercised poor 
judgment; whereas loss in the second case brands us as criminals. 

Thus it appears that our national-banking laws discriminate in 
this particular in favor of the city and of wealth as against the 
country districts. 

Although the urban population has increased enormously, it still 
is less than the rural population; and it remains with the country 
man to supply the sinews for the very existence of the rest of the 
country. 

I think it can readily be shown that such national banks that have 
failed on account of real-estate paper were the victims of an unfor- 
tunate system rather than on insufficient security. While we 
country bankers feel our incompetence to deal with the larger aspects 
of the monetary question, leaving them to the maturer judgment 
of our representatives in Washington, we feel that your action in 
extending to us the privilege of lending on real estate would some- 
what alleviate our situation and enable us the better to compete 
with successful State banking systems. 



SUGGESTIONS EESPECTIN^G PKOPOSED CURKENCY EEEOKM. 81 

Trusting that this communication may receive your careful atten- 
tion, I beg to remain 

Very truly, yours, , A. B. Phillips, 

Cashier First National Bank. 



Greensburg, Pa., May 25, 1913. 
Senator Robert L. Owen, 

Washington, D. C. 

Dear Sir: I feel impelled to write you callmg attention to some 
fundamental defects in your proposed banking bill as sketched in 
North American of Philadelphia. 

I have spent much time in the study of our money question and 
served as cashier of a bank during the panic of 1893 and did business 
-all through that panic and forced my New York correspondent to 
send me cash for United States pension checks, which he at first 
refused to do, as he said the Sub treasury at New York was a member 
of the clearing house and would not cash such checks unless they 
came indorsed by a New York bank. But if sent to a New York 
bank, then I could only get credit on their books, but no cash. I 
got the cash by threatening to take $5,000 of the pension checks 
direct to the sub treasurer properly indorsed and see if he dare refuse 
to pay such Government obligations. They sent the money. I 
preface my remarks by this illustration to show that the panic of 
1893 was a deliberate '^ holdup" to force the repeal of the Sherman 
Purchasing Act and to force the issue of new bonds at better than 2 
per cent rate on which the banks desired to take out currency. The 
claim that there was anything the matter with greenbacks circulating 
at par with gold was but a flimsy piece of bankers' flimflam. 

The panic of 1907 was a worse deliberate holdup, but better organ- 
ized, than that of 1893. The banks were in complete control, and 
the clearing-house checks were issued and distributed several days 
before the squeeze was ordered. The banks are still in complete 
control of currency and credits and as well all important railroads and 
large industries, in addition to the funds of all large insurance com- 
panies, and assume now to dictate the rates of interest and purposes 
of bond issues in municipalities, which of course means the taxing 
power is in their hands. Bonds issued to pay for a profitable water- 
works or electric-light plant desired by the people of a municipality 
can find no market if the owners of the plants do not desire to sell. 

Small and new industries that will compete with the trust-controlled 
plants are frowned upon by the banks and capitalists who are in 
friendly touch with the banking control and have stock in a trust. 

All this to show you the gravity of the situation and to call atten- 
tion to the fact that though your bill proposed Government control 
of the banks, you give the banks control of the currency. 

The gravest error committed by this Government in more than a 
half century was the national banking act permitting such banks to 
issue currency — -thus turning over to them a vital Government 
function. 

Also, the Government for many years has allowed the so-called 
reserve banks to have the use of Government deposits amounting to 



82 SUGGESTIONS EESPECTING PROPOSED CUREENCY EEFOKM. 

millions for nothing. This gave the banks a monopoly of money and 
credits, and has tied the hands of the Government against any method 
of relief to the people. 

Why make the banks the '^ middleman" between the Government 
and the people ? If they are to have the privilege of issuing asset 
currency, this means that they will still have a stronger hold on the 
currency and credits than they now have. 

Why not allow the people to come in touch direct with their 
Government and loan tlie money direct to them instead of on the 
assets of banks, collected from them at high rates of interest ? This 
can be done through the post offices widely scattered through the 
Nation by enlarging the postal savings-bank system to really serve 
the people instead of the banks. 

Give us a bill allowing the Government to issue money to States, 
counties, and municipalities at a par valuation of such bonds 
properly voted by the people and bearing 4 per cent interest, payable 
in 25 years in 4 per cent annual payments. Loans of this character 
should be handled by the Secretary of the Treasury direct. 

Establish a loaning department in every postal savings bank and 
raise the interests on savings deposits to 3 per cent and allow the 
money to be loaned to holders of real estate on a 50 per cent valuation 
at 4 per cent interest and 4 per cent annual payments. This will give 
the working class, struggling to own a home, a chance to slip away 
from the clutches of a pending sheriff's sale and let him be a man and 
a patriot — not beholding to a money lender, but a lover of his Govern- 
ment that serves him as it should. 

This scheme is not new. It is older than this Government; for it 
was devised and used by the Colony of Pennsylvania under the 
leadership of Benjamin Franklin. The colonial assembly issued paper 
money for this purpose, and business was revived; and Franklin 
says the value of this paper money did not fall, for it was made redeem- 
able in taxes due the Colony, and if the borrower could find no more 
profitable use for the money, he went and paid off his mortgage, thus 
automatically contracting the currency. 

There is no need to make currency issued by the Government 
redeemable in gold and thus give speculators the power to force bond 
issues by asking for gold redemption. 

Let no gold certificates be issued by the Government except in 
payment for gold bullion and demonotize gold except for foreign 
accounts. 

Importers can then get gold certificates issued by the Government 
by depositing gold with the Government. These certificates will be 
good the world over and make this nation the banker of the world 
instead of the Bank of England with all the accruing advantages of a 
better and safer system. 

This Government can then regulate the value of her money units 
by the regulation of the number of dollars issued — the only way the 
purchasing power of a nation's money unit can be regulated. 

It is a high national function of the Government given to Congress 
by the Constitution, viz; '^ * * * to coin money and to regulate 
the value thereof and of foreign coin." Gold is no longer in use in the 
country as a circulating medium, and now is the time to settle the 
money question right. 



SUGGESTIONS KESPECTING PROPOSED CURRENCY REFORM. 83 

Nowhere does the Constitution give Congress the right to farm out 
the issuing or coining of money to banks and require the people to 
pay banks extra for the use of the Government's credit. 

The best argument for this sort of bill is that it puts the Government 
into the banking business because it is the business of the Government 
to do this for the people direct which he can not do for himself, and 
such is the monopoly of money and credits that no power but the 
Government can cope with the situation. 

Your bill gives the Government resources to the banks; my plan 
lets the people have direct access to these resources. Your bill still 
gives the control of credits and money to the banks; my plan puts 
the Government in competition with the banks. This way alone will, 
in my opinion, break the power of the Money Trust and avert a 
civil war not far off under any plan that still gives the banks control 
of the currency and credits. 

You are a busy man but take time to think what you are up against 
and be ready to see a better way and an effective one when presented 
by even an humble citizen. 

From some remarks by the President in his New Freedom and 
in his inaugural address I think he sees things as I do. Help him to 
pass some such a bill if he has one presented. 



Yours, truly, 



N. H. MOTSINGER, 

Manufacturer . 



32 Liberty Street, 

New Yorlc, May 27, 1913. 

My Dear Senator Owen : I have been giving considerable thought 
to the subject brought up by you recently — whether it would be 
sound monetary policy to have currency notes issued by the Govern- 
ment. I think it is possible to devise a plan under which this might 
be permitted, if the Government were separated from any disposi- 
tion to inflate the currency and make a profit by the excess of notes 
outstanding over the gold reserve by leaving the control of issues to 
the demands of business. 

What would you think of a plan which put a 50 per cent gold 
reserve behind the existing Government notes and the existing bank 
notes and at the same time cut in half the national bonded debt? 
I have been considering such a plan from many aspects and so far as I 
have gone, it seems to me safe and practicable. If agreeable to you, 
I would like to talk it over with you at some length when I return to 
Washington at the end of this week. If you are at liberty on Sunday 
next, perhaps we could arrange a talk for that day. I believe the 
plan I am working on, if I do not find any flaws in it, would be one of 
the most popular which the administration could adopt. 

If you answer this at once, you can address me here. If your 
answer is delayed two or three days, please send it to The Farragut, 
Seventeenth and I Streets. 
Yours, very sincerely, 

Charles A. Conant. 
The Hon. Robett L. Owen, 

Chairman Committee on BanJcing, 

United States Senate, Washington, D. C. 



84 suggestions eespecting pkoposed curbency refoem. 

Oklahoma City, Okla., 

May 27, 1913. 
Hon. Robert L. Owen, 

Washington, D. C. 

Dear Sir: I wish to express my hearty approval of the proposed 
currency bill as reported by the daily press. Allow me to suggest 
that the law should permit State, county, and city bonds as a basis 
for national-bank currency, regular as well as the emergency. This 
would tend to make a local market for these securities, and be per- 
fectly safe for the circulating medium. 

The law should provide a first lien on all the assets of the bank for 
the emergency currency. 

Four per cent should be charged for the emergency issue, to be in- 
creased 1 per cent monthly until the issue is retired. 

The law should require national banks to accept at par the drafts 
issued by all other national banks in the United States. This would 
be of the most far-reaching benefit to all the banks West, as it would 
enable them to keep all their balances in their own section. Now 
banks are obliged to carry an account in New York in order to be able 
to furnish exchange for its customers that is par, and it is a fact that 
New York exchange is the only universally par exchange. This is 
wrong, and now is the best time to rectify it. 

Very respectfully, F. C. Garner, 

State Agent Banlcers Life Co. 



Washington, Pa., May 27, 1913. 

Hon. Chairman Senate Currency Committee, 

WasJiington, D. C. 

Dear Sir: We notice that your honorable body has sent out a 
request to the bankers for an expression of their views on an improve- 
ment in the financial system of the country. 

Now, in our humble judgment the bankers should be the very last 
body of men whose opinion should be asked or taken into considera- 
tion whatever, for this body is not liable to give advice that will in 
any way tend to jeopardize their present or future interests, not that 
the bankers are more alert to their own especial interests than any 
other collection of men would be under similar circumstances, the 
only difference being between their business and any other is that 
they are handling a commodity that concerns directly the Iv^hole 
people and is owned and should be controlled by the people — meaniag 
the Federal Government of course. 

It would be just as reasonable to ask the distiller or the manufac- 
turer of tobacco what revenue should be collected from their product 
as to ask the opinion of the banker on the best currenc}^ system. In 
a word, there is just one currency system that wiU give absolute satis- 
faction to the whole people and at the same time do entire justice to 
everyone, and this system is to put the interest on money all over the 
United States at 4 per cent, making it a penalty to collect more or 
loan for less, and at the same time let the Government purchase the 
gold — that is to say, the raw material — coin it, and keep it in the 
vaults of the Government and issue certificates against it and charge 
a premium for gold when certificates are presented. 



SUGGESTIONS KESPECTING PEOPOSED CUREENCY EEFOEM. 85 

This will effectually keep our gold from being carried out by for- 
eigners into all the countries of the earth and left there. 

This method will also keep greedy bankers from having an oppor- 
tunity to hoard the people's gold in private vaults, thus creating a 
panic whenever they see fit or perceive a large gain by doing so. 

By resorting to the above method the people would always know 
just where the gold was; therefore there would be nothing to create 
a panic; the people would get their money at a reasonable interest — a 
thing not possible under the present system. 
Very truly , yours, 

Pateick Yoeke, Manager. 

Denvee, Colo., May £8, 1913. 

Chaieman Banking and Cueeency Committee, 

Washington, B.C. 

Deae Sie: With more than 40 years of practical banking and 
financial experience, with financial suffering to spur me to learn cause 
and effect, with close study of the banking and currency questions, 
kin(lly permit me to present mere briefs for your careful consideration, 
in accordance with your recent invitation. 

I take it that you desire scientific banking and currency; that you 
want to make bank panics impossible; that you would wish to 
include the impossibility of sundry bank failures in normal times, 
except through excessive dishonesty or excessive bad judgment in 
making loans; that you wish normal times always and never abnormal 
final cial conditions; and, in short, that you would have the American 
peojle prosperous and contented in so far as these can be accom- 
plisted through your committee. 

I :ake it that you realize that scientifically price level is money 
level, and conversely that the money level is the price level, save and 
exccDt where, artificially, tariff walls exist, and powerful financial 
com)inations can and do, with safety, force prices even up to the 
top of the tariff walls, thus compelling the people to pay roundly for 
human greed. 

I Delieve that you realize that the present average price level in this 
couitry is abnormally high, and if this or a future Congress is to 
eliirinate the all-powerful forces that operate on the principle that 
''mght makes right" prices will still continue up to if not above a 
nornal through the present volume of money. 

i^suming that you are in accord with the foregoing, may we not 
wel ask, Can the money level of to-day be raised with safety, and 
espcially in view of the proposal to lower the tariff walls? 

j^gaiU; the Secretary of the Treasury reports that in 1912 the 
Government redeemed in gold $646,000,000, or about 88 per cent 
of the average national bank notes outstanding, also $854,000,000 
of the Treasury notes and gold certificates. Does not this warn us 
thit we may have well-nigh reached our present maximum of ability 
to redeem in gold alone our outstanding paper, excepting the gold 
certificates, which are fully provided for, and especially if in the near 
fiture there should be for a time a reversal of our bounteous crops ? 
Mature does not always favor Americans alone. 

Of the total volume of legal tender and of credit currency supposed 
o have been afloat on January 1 last the Government reports but an 



86 SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

average of about 9 per cent of the $17,000,000,000 of bank credits or 
deposits in the hands of the banks, or $9 to meet a potential require- 
ment of each $100 of deposit liability. This is confirmed by the 
National Monetary Commission. Forty-seven per cent of the total 
money volume '' is said to be" in the hands of the people. Of the lat- 
ter there is, then, about $80 average tucked away by each family of 
the United States. Is this possible, especially in these times ? If so, it 
is a sad reflection on the people's confidence in the safety of the banks. 

On two recent occasions the Government has '^scaled" the estimates 
of the money volume. Is it not just possible that another guess should 
be made ? For instance, of the thousands who cross the two oceans 
annually, how can be obtained the amount of gold that these travelers 
take with them out of the country ? 

With the lowering of the tariff walls come cargoes of every variety, 
sold by cable in advance 'Ho arrive." Payment will be required in 
gold until our price level makes it more profitable to take out cargoes 
of our products in payment. 

Siirely, scientific price levels correspond with money levels wherever 
cables and telegraphs network the sea and the earth. Wherever 
ships ply, the iron horse snorts, the ox and the jack penetrate, tbtjrO; 
are gathered the products of the earth, sea, and sky, seeking the higtiest 
markets. 

The pulse of the merchant is the pulse of the commercial world. 

The above is recited to show^ — 

First. That a material increase of credit currency is now dangerous, 
on account of the present high prices ; also because of the great redemp- 
tion demands into gold. 

Second. Especially is the currency doubtful when founded ipon 
commercial paper and the like. The banks themselves will be the 
first to convert such currency into gold. The people will speedily 
follow. It would be fraud on the part of the Government to lide, 
on the issues, the security of such currency. The people would rsent 
this. 

Third. Never-failing reserves, never-failing currency, and elastcity 
are a chimera that can not be maintained. 

How, then, can the banks be made safe at all times, and howcan 
bank panics be forever prevented ? 

By authorizing banks to discount paper and make mvestments fay- 
able in '^credit funds," as well as at present to discount paper anl to 
make investments payable in ''cash" or '^current funds." 

For a full brief of this method, I inclose a booklet on the subject 
which is made the principal part of this communication. Bank com- 
petition would speedily make this self-acting. 

As an example of >vhat this will do for bankin.g ar.d the curreni-y, 
permit me to recite: 

The big four bonding and surety companies alone of the United 
States have a combhied capital and surplus of around $15,000,0(0. 
They have outstanding, in risks and underwritings, nearly thi^e 
billions of dollars, or 200 times their capital and surplus. They a^e 
seeking to multiply this amount by taking on ail of the additiond 
business that they may obtain. Every dollar of these risks must l^, 
met. A loss of but 5 per cent on all would be their ruin, a:i\d yet the^ 
are among the big money-makuig cor])oratio:ns of the country. Mos 
of these risks are identical in financial principle with the risks of tli* 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 87 

banker in making loans. This is but one illustratior., which should 
;*rfufFice. Others could be named. 

The question of "credit funds discounts and investments" under 
the amendment to the bank act herein, proposed is arbitrary as to 
the maximum amount to be based on the capital and surplus of the 
bank, but it is modest to say that but five tunes the amount might 
be loaned by the banker that his capital nr.d surplus show, all of such 
funds payable in credit funds. This in addition to the loans and 
investments payable in cash funds. In the former case, as in the 
latter, the banker has sound securities and loans. The capital and 
surplus would stand as sponsor for such credit funds the same as they 
now do for cash funds or deposits. Cash ''runs to cover" at the 
least alarm. Credit funds could never do this. 

About five years ago a National Monetary Commission was ap- 
]>omted in accordance with an act of Congress to formulate a plan for 
the financial relief of this people. With ample time and money at 
its command the commission brought forth the Aldrich plan. This 
plan has fallen still-born and, I think, justly so. Other prior efforts 
have been, talked to death in Washington, but nothing has been 
accomplished. Meantime 95,000,000 of the flower of the earth have 
})atiently suffered, trusting that the Coiigress might finally evolve 
something worthy of the name. Thus far all has been in vain. 
The late report of the Hon. Franklin MacVeagh, Secretary of the 
Treasury, should spur this new Congress to immediate action. 

I therefore trust that your committee will be active in giving the 
people absolute relief for all time from the throes into which they 
have been plunged through no fault of their own, and I urge that you 
give the inclosed booklet and this letter due consideration. I beg to 
remain. 

Very trul}^, yours, C. D. Gurley. 

Lake Arthur, La., May 29, 1913. 

To the Senate Banking and Currency Committee, 

Washington, D. G. 

Gentlemen : Your committee is charged with one of the most im- 
portant investigations that can be confided to any body of men, and 
it is to be hoped its work will be sufficiently broad to reach all classes 
of persons. Through the queries sent out to bankers and financial 
experts your committee will receive suggestions from only a small 
fraction of those interested in the result of your deliberations, and 
these suggestions will come from those who are interested in the 
''currency" only as a commodity for speculation, just as stocks and 
bonds and wheat, etc., are commodities for speculation on the boards 
of trade. Our currency and banking system is of far more importance 
to the masses of the people than is the tariff schedule. As a medium 
of exchange of values -every individual is vitally interested in the 
currency. The bankers and financiers have no more interest in the 
currency of the country than has the worker who receives a dollar 
a day for his services as janitor, except as they are permitted to 
speculate with it, bulling and bearing the money market as suits 
their pleasure. 

A currency system that places within the control of bankers and 
financiers the volume of money is a menace to the best interests of 



88 SUGGESTIONS EESPECTING PROPOSED CURRENCY REFORM. 

the public, and the National Government should stand between 
speculators and the people in such a way as to make it impossible for 
any class of persons to control in the least the circulating evidence? 
of value necessary in conducting the commercial transactions of the 
country. So long as we have a banking system that gives to private 
individuals or corporations the power to control the currency our 
commercial interests will be in their power to control. Their power 
is supreme, and panics and commercial depressions will come and go 
at the command of a few persons whose interests are opposed to that 
of the masses of the people. 

There is but one reason why our banking and currency system 
should not be under the direct management of the National Govern- 
ment, and that is the bankers' association. If the National Gov- 
ernment can conduct a postal department successfully, it can conduct 
a banking department successfully. It is far less difficult to regulate 
a business from the inside than it is to regulate it from the outside, 
and the regulation and supervision of banks by the Federal Govern- 
ment to-day is no protection to the people. Their deposits in savings 
institutions, national banks, and State banks are at th3 mercy of 
speculators and dishonest bank officials. Under a sane banking sys- 
tem a depositor would be as well safeguarded as is the purchaser of a 
post-office money order and ^'busted'' banks would be as scarce as 
'^ busted" post offices. No class of persons who might be interested 
in making ^' money scarce" could control the volume of currency 
and its elasticity would be under Government control. 

In your deliberations would it not be possible to take in considera- 
tion the needs of the ^'common" people as well as the wishes of 
bankers and finance experts? Would it be possible for you to take 
under advisement the establishment of a department of banking and 
currency to be conducted in a manner similar to our present Post 
Office Department? Retire Government bonds by issues of national 
currency receivable for all debts, both public and private; full legal 
tenders; and establish a Government banking system to take the 
place of our present rotten national and private banks that are robbing 
the people both going to market and coming home. If necessary^ 
turn the Sherman antitrust law loose on the bankers' association and 
see if it will have any more effect on it than it did on the Standard 
Oil or Harvester Trust. Now is the time and the opportunity is 
yours to work off a stunt that will be of benefit to the entire country. 

Your secretary has probably tossed this into the wastebasket 
before reaching this paragraph, but if not, really, Messrs. Committee- 
men, don't you think it would be only justice to give us '^ common 
people" an opportunity to be heard on this banking and currency 
proposition? We are vitally interested in it. On it depends the 
welfare and happiness of 90,000,000 of us commoners, while the bankers 
and financial experts make up but a handful. To us it means a live- 
lihood. To them it means something to speculate, to gamble, with 
at our expense. Protective tarin or free trade has about as much to 
do with the welfare of the worker as has the changes of the moon,, 
while the currency is our circulating medium of exchange and repre- 
sentative of value — our lifeblood. We are ready, 90,000,000 of us, 
ready to advise with you, and we are not nearly such fools as we 
sometimes appear. 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM, 89 

Hoping this ''butinski" comniunication from one of the commonest 
of commoners will not cause the committeemen spasmodic heart 
action, I remain, 

Devotedly, yours, S. W. Paxson. 

Muskogee, Okla., June 7, 1913. 
Hon. KoBERT L. Owen, 

United States Senate, Washington, D. C. 

Dear Senator: Your letter of the 27th to Mr. Ogden, inclosmg 
preliminary draft of bill mobilizing reserves and providing for an 
elastic currency, was handed to me by Mr. Ogden just before leaving. 
He will be back Monday and will write you direct in regard to this. 

I think your proposed plan is in line with the best financiers of the 
country as to replenishing reserves and retiring emergency notes by 
penalizing the issue. Your plan of distributing Government funds 
I think admirable. Personally, I fear the results if banks are per- 
mitted to lend their indorsements, which I construe to be your 
meaning, page 2, Imes 4 to 9, particularly lines 6 and 7. I fear the 
banks who should not be permitted to exercise this privilege would be 
the ones who would indulge in it most. I believe there could be no 
objection to the manner in which you have divided the country for 
reserve banks nor in providing for the election of officers and gov- 
ernors. 

Any plan decided upon will be an experiment with people of our 
disposition and manner of doing business, and while these methods 
have proven a success in the European countries, I fear the speculative 
nature of our American people, who have secured their wealth so 
rapidly, will give any plan proposed a very severe test, unless the 
large banks of our country will undertake to uphold and carry out 
the proposed methods. 

Mr. James G. Gammon, of the Fourth National Bank of New York, 
has just recently issued a letter in which he claims a solution for our 
present banking evils. If you have not received it, I shall take 
pleasure in forwarding same to you. 

With personal regards, I beg to remam. 
Yours, very truly, 

Asa E. Ramsay, 
Vice President First National Bank, Muskogee, OMa. 



New York, June 13, 1913. 

My Dear Senator Owen: The more I think of the provision of 
your bill which gives control of the ''regional associations" to the 
bankers, the more concerned I feel about it. 

It is, of course, true that this plan is an improvement on the 
Aldrich plan. But even this plan, to my mind, is so dangerous as to 
be entirely undesirable. 

If the administration should put through such a bill, I believe it 
will go down in defeat at the next presidential election before the 
Bull Moosers or a combination of progressives of all political parties. 

It seems to me that you have here an opportunity of a lifetime to 
add to your reputation for moral courage and statesmanship bj^ 
standing like the Rock of Gibraltar against any plan that gives control 
of the lifeblood of commerce into the hands of men who are operating 
for profit. 



90 SUGGESTIONS EESPECTING PROPOSED CURRENCY REFORM. 

Whoever controls the credit of a region controls the industrial life 
of that region, and I doubt if any system of regulation by the central 
association could be worked out in less than a generation that would 
curb the greed and tyranny of the financial overlords of a ''regional 
association." It has taken us a generation to work out a system of 
railroad control, and now that we have it nobody is satisfied with it. 
The railroad presidents are howling for the right to raise rates in order 
to pay ''reasonable" dividends on watered stocks. Moreover, they 
have gained a hard and fast monopoly on New England transporta- 
tion, and the last link in their chain was forged in infamy and cor- 
ruption over the veto of even as conservative a man as Gov. Foss. 

Our present attempt to reform our currency system is the most 
important piece of legislation that has been attempted during my 
lifetime. You are in a position of great influence. No matter what 
attitude McAdoo or Wilson or anyone else takes, it seems to me that 
you should stand for public control of this vital public function, 
though the heavens fall. 

I wish I could remain in America to take a hand in the history that 
is being made at Washington, but perhaps my time w^ill come later. 
Most sincerely, yours, 

Carl Vrooman, of Illinois. ' 



Boston, Mass., June 16, 1913. 
Hon. R. L. Owen, 

Chairman Committee on BanJcing and Currency, 

Washington, D. C. 

Dear Sir: I beg to acknowledge your courtesy in sending me, under 
date of June 5, the so-called ^'thirty questions" in regard to currency 
legislation. While I appreciate the possible compliment of having 
the questions sent me for answer, I feel that the subject has been so 
thoroughly discussed that my views would not add anything to the 
information you have already received. 

As you can perhaps imagine, from my position as an eastern banker, 
I believe the two great needs of the situation are a currency that will 
be received without question when there is a demand for currency 
and a place where the banks can rediscount their good paper when 
they are called upon by legitimate business needs for an unusual 
amount of credit. Still further, I strongly believe that the banks 
should furnish the currency, under Government restriction, rather 
than the Government itself. For these, if for no other reasons, it 
seems to me there would be less chance ifor inflation and less chance 
for possible premium on gold. 

Yours, respectfully, Thos. P. Beal. 

President Second National BanJc. 



New York, June 16, 1913. 
Hon. Robert L. Owen, 

United States Senate, Washington, D. C. 
Dear Sir: May I respectfully suggest that if any real need of addi- 
tional currency should develop this fall for crop moving the emergency 
notes authorized in the act of May 31, 1908, could be made available 
for this purpose by a simple amendment to the law authorizing the 



SUGGESTIONS EESPECTING PROPOSED CURRENCY REFORM. 91 

Secretary of the Treasury to remit the tax on the notes for, say, a 
period of from three to five months. 

No bank likes to hang out a signal of distress, and this interpretation 
might be placed upon the issue of heavily taxed notes. Besides, the 
facilitating of the harvesting and marketing of the crops is one of the 
most obvious functions of commercial banking, and the banks ought 
not to be taxed for rendering such a service. Whatever tax is im- 
posed must of course be borne by the community. 

By conferring upon the Secretary of the Treasury discretion to 
impose the tax after three to five months the retirement of the cir- 
culation when not needed is assured. 

If the simple amendment above proposed should be adopted, it 
would amply provide for all conceivable emergencies and a general 
revision of the banking and currency laws might well go over to the 
regular session of Congress next winter, the measure to be intro- 
duced before the end of the special session and to be carefully con- 
sidered during the summer and fall. 

In my judgment, the country has heretofore suffered from hasty 
financial legislation adopted under pressure of real or imagined neces- 
sity. Upon a question of such great importance we shall hardly err 
through deliberation. The amendment I have proposed to the 
existing law would, I think, remove all possible excuse for hasty 
action. 

Sincerely, yours, E. H. Youngman, 

Editor Bankers Magazine. 

Muskogee, Okla., June 19, 1913. 
Hon. Robert L. Owen, 

United States Senate, Washington, D. C. 

Dear Senator: Answering yours of the 27th ultimo, I have read 
and studied with much interest the proposed biU establishing the asso- 
ciations of national and other banks, to be known as reserve banks, to 
provide additional circulation when required. I have given this bill 
a great deal of thought, and in my opinion it comes as near covering 
the ground and at the same time providing a medium of circulation 
meeting the requirements of the banks of the country as it would be 
possible to devise. I can not see wherein any individual who had the 
good of his country at heart could criticize this bill as being one 
drawn for the purpose of favoring any class or creed. 

While the bill does provide that only banks may be able to use the 
privilege — the banks of the country are owned by individuals — and 
regardless of any measure that might be devised by Congress, the 
borrower would always go to his bank for aid, and it occurs to me 
that this bill provides exactly the medium through which the indi- 
vidual can secure his needs. I beheve that just as soon as this bill 
becomes pubHc and the people of the country have a chance to study 
it it will meet with much favor and that it wiU be one, if not the best, 
piece of legislation the Democratic Party will be able to enact during 
its administration. 

I very much appreciate your having forwarded to us this proposed 
bill; and assuring you of our good wishes, with highest personal 
regards, I am. 

Yours, truly, H. H. Ogden, 

President First National Banlc, Muskogee, OkJa. 



92 SUGGESTIONS EESPECTING PROPOSED CUERENCY EEFORM. 

Apache, Okla., June 19, 19 IS. 
Senator Robert L. Owen, 

WasJiington, D. C. 

Honorable Sir: It is with some temerity that I approach you 
with so large a subject as to offer a suggestion on the finances of the 
United States, but as I have given it considerable thought T will 
suggest : 

First. That as temporary relief the Government loan on real estate 
three-fourths the purchase price of the land at 5 per cent for a period 
of 40 years and at the end of that time give the borrower a release to 
the land. 

Second. That instead of hoarding the money in the Government 
vaults it be loaned to land owners at 5 per cent for 40 years, as 
above explained, or on land already owned for any legitimate purpose. 

Hoping that this may help you over some difficulty, I am. 
Your humble servant, 

Simon S. Laughlin, 

Real Estate Operator. 

New York, June 21, 1913. 
Hon. Robert L. Owen, 

Chairman Senate Committee on Banking and Currency, 

Washington, D. C. 
Honorable and my Dear Sir : Inclosed find copy of a letter writ- 
ten by me to the Hon. Theodore Roosevelt, President of the United 
States, November 22, 1907. 

As the letter makes some suggestions whereby the incumbent of 
your office shall be a member of a committee, deemed it wise to send 
you at this time the inclosed letter, thinking some thoughts in same 
may be of service at this time, when the matter of emergency certifi- 
cates is soon to be discussed. 

I assume all responsibility for the expression ^'emergency certifi- 
cates," for the term had never been used theretofore. 
Yours, very truly, 

William A. Tuckek. 



New York, November 22, 1907. 
Hon. Theodore Roosevelt, 

President of the United States, Washington, D. C. 

Dear Sir: The present currency stringency suggests that a law 
might be passed embracing some of the following thoughts : 

1 . That the Treasurer of the United States shall immediately have 
printed $200,000,000 in certificates in the following denominations, to 
wit: $50, $100, $500, $1,000, $5,000, which certificates shah be known 
as ''emergency certificates." They shall be so printed that the public 
may distinctly observe they are different from the regular currency. 

The life of these certificates shall be three months (or six months), 
when they, so many as have been used, shall be returned to the Treas- 
urer of the United States, and the whole issue of this date shall be 
forthwith canceled. The Treasurer of the United States shall then 
have printed another $200,000,000, to be dated three months (or six 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 93 

months) later than the first issue and hold them that they may be 
ready for distribution when another emergency may require their use. 

2. A commission shall be appointed at once consisting of (a) the 
President of the United States as chairman, (b) the members of his 
Cabinet (whose nominations have been confirmed by the Senate), (c) 
the Vice President of the United States, (d) the Speaker of the House 
of Representatives, (e) the chairman of the Finance Committee of the 
Senate, (f) the chairman of the Finance Committee of the House of 
Representatives . 

A two-thirds majority of aforesaid committee shall decide whether 
a.n emergency exists. If they shall decide in the affirmative, the 
Treasurer of the United States shall forthwith issue the $200,000,000 
worth of emergency certificates to all national banks applying for 
their quota, or may direct any United States Government depository 
to accept its quota. 

The quota to any national bank shall not exceed 5 per cent of the 
paid in capital of said bank. Any national bank applying for its 
quota shall pay for same to the Treasurer of the United States at 
par in United States currency. 

The Treasurer of the United States shall then deposit 95 per cent 
of the proceeds of such sale in the national bank subscribing and 
paying for its quota, or may deposit it in another national bank. 

These certificates shall pass current between all national banks for 
obligations of one to the other, but at no time shall any national 
bank hold more than 10 per cent of the paid in capital of such 
national bank. 

These emergency certificates may be held by any national bank as 
part of its reserves. 

At the end of three months (or six months), or sooner, if the 
aforesaid committee, or a two-thirds majority of said committee, 
shall have determined the emergency under which these certificates 
have been issued no longer exists, the emergency certificates shall be 
called in by the Secretary of the Treasury in total or in such amounts 
and at such times as said committee shall direct (provided the Presi- 
dent of the United States shall concur). 

These emergency certificates shall not carry interest. 

The courtesy of a reply will be appreciated. 
Yours, very respectfully, 

William A. Tucker. 



Jacksonville, Fla., June 23, 1913. 
Senator Owen, 

Senate Chamber, Washington, D. C. 

Dear Sir: I have just been looking over the outline of the new 
currency bill as reported in the morning papers, and it seems to me 
that it retains all the objectionable features of the present system 
and adds some new ones to the general confusion. 

The authors seem to have overlooked the fact that they had two 
distinct propositions before them, one concerning the currency and 
the other the banking business of the country. Surely these two 
things should be kept separate and distinct in all our thinking and 
legislation. One is a distinctive function of the National Govern- 
ment and should not be delegated to anyone else; the other is not 



94 SUGGESTIONS EESPECTING PROPOSED CUKKENCY EEFORM. 

a function of the Government and calls only for governmental super- 
vision and regulation. 

The position that our currency ought to be issued and controlled 
by the National Government, and that it should be uniform in char- 
acter, is becoming more and more the conviction of the people of 
this country. Moreover, an adequate minimum per capita circu- 
lation should be provided and maintained by the Government itself. 

That our currency should be based upon gold and redeemable in 
gold goes without saying. It appears to me that the following 
points, if embodied in a bill and made the law of the land, would 
meet all these conditions, besides giving other highly desirable 
qualities to our currency. 

First. Let the National Government issue a uniform system of 
Treasury notes to displace all outstanding currency of whatever 
kind, except silver coins, and make this currency redeemable in 
gold at the present ratio. 

Second. Take from gold its legal-tender function, except in cases 
of existing contracts. 

Third. Prohibit all exportation of gold by export duty, or other- 
wise, except such gold as may be furnished by the Treasury for 
settlement of foreign obligations, as hereinafter provided. 

Fourth. In settlement of foreign trade balances and obligations 
let the Treasury furnish the necessary gold in exchange for Treasury 
notes. 

Fifth. When gold is offered to the Treasury let it issue its uniform 
notes as above, at the present ratio, in exchange, or give for the gold 
Treasury notes already in the Treasury which have been acquired by 
furnishing gold for foreign purposes. 

Sixth. For emergencies retain the provisions of the Vreeland- 
Aldrich bill, or some similar arrangement. 

Seventh. Make an equitable adjustment to the holders of United 
States bonds now in use for circulation purposes. 

Such a system would accomplish the following: 

First. It would put into the hands of the Government direct com- 
plete control of all currency. This is where the Constitution places it. 

Second. Such a transition could be easily made. 

Third. The minimum amount of currency would be fixed at the 
amount now in use. 

Fourth. Gold, being deprived of the legal tender function, would 
flow into the Treasury. 

Fifth. Bankers through self-interest would be forced to maintain 
such a system of notes at par, as their only stock in trade would be 
these very notes. They would see that in settlement of foreign obli- 
gations the demand upon the Treasury for actual gold is kept down 
to actual needs. 

Sixth. It would protect our financial system, as far as domestic 
trade is concerned, against the shocks it is constantly receiving from 
the world's scramble for gold. 

Seventh. It would give us a more scientific system in that the 
thing by which the currency is to be redeemed would not circulate 
side by side with the thing to be redeemed. 

Eighth. It would prevent the hoarding, or trafficking, in gold, 
which often violently and disastrously affects its functions as money. 



SUGGESTIONS EESPECTING PEOPOSED CUEREXCY EEFOEM. 95 

I think we can all agree that a Nation as large as ours should no 
longer retain a system of finance that puts its domestic business at the 
mercy of the world. That such a currency as outlined would pass 
current without question goes without saying. 

Certainly there would be as much gold behind each dollar of this 
currency as there is to-day behind the currency now used. Whatever 
else is behind our present currency is merely somebody's promise to 
pay, and surely the promise of the Government, which is a promise 
of all of us, is worth more than the promise of any part of us. 

The idea here is simply to get a domestic currency that will not be 
disturbed by world conditions, leaving our foreign trade on the same 
basis it is novv. 

Yours, truly, W. K. Sligh, 

President Maxville Farm <& Development Co. 



Welch, Okla., June 23, 1913. 
Hon. Robert L. Owen, 

Washington, D. C. 

Dear Sir : I beg to offer the following and think that there may be 
some thought in it that might suggest to you something in this cur- 
rency reform : 

First. Let the National Government issue the currency and let it 
loan it to the States at 1 per cent. 

Second. Let the State loan this currency to the counties at 2 per 
cent. 

Third. Let the county loan this currency to the farmer at 3 per 
cent, on the basis of one-half of the assessed value of his property. 

Now, my dear Senator, by this system the people will be able to 
develop their farms and get cows and the few things that are needed 
to make the life of the man on the farm more pleasant and to bring 
prosperity where it must come from. 

As you know, we here in this section have the greatest dairy country 
in this United States, and this is what we need to make this country 
take the place that it is entitled to. 

As it is now, our people are forced to pay 10 per cent for money, 
and you know that they can not do that and have anything left to 
educate their children on and to get those things that are necessary 
to make life what it should be. 

Most respectfully, yours,- Wm. Weitz. 



Philadelphia, Pa., June 23, 1913. 

To the Chairman of Committee on Currency, 

Washington, D. C. 

Dear Sir: I wish to suggest that the building associations shall be 
included in the privileges of Government help on the same basis as 
national and State banks. These organizations are under State 
supervision, do a practical banking business, and helpfulness to them 
caches more directly to the whole people than through any possible 
financial channel. 

2736—13 7 



96 SUGGESTIONS EESPECTING PKOPOSED CUEEENCY EEFOEM. 

It would be entirely safe to provide — 

First. That such Government currency shall not exceed 10 per 
cent of the assets of any individual building association. 

Second. That security be provided by a deposit of first mortgages 
of face value equal to the deposit, mortgages to be "past due" and 
first liens on real estate with assessed value at least double the face 
of the mortgage in fee simple ownership. 

Third. That the assignment of mortgages shall be accompanied by 
note of the association indorsed by five directors, and the claim be a 
first lien on the assets of the corporation. 

Fourth. That no individual association shall be entitled to receive 
more than $50,000 of said special currency. 

Fifth. That charges, fees, taxes, and other requirements for these 
privileges to building associations • shall be precisely that required 
of national and State banks except as regards the special features as 
above noted. 

It is not generally understood to what extent the building associa- 
tion idea has progressed. In Pennsylvania the assets rival that of the 
trust companies and much exceed the savings funds in deposits. Phila- 
delphia alone has no less than 900 associations, with deposits of 
$125,000,000 or more, and many of these associations have "directly 
owned" past-due mortgages, and these associations are the best bor- 
rowers in the market. Their paper is rated Al without special de- 
posit of security; they neeel an elastic supply in such limited amount 
as is safe, and the directly owned mortgages provide for investment 
when deposits accumulate and a basis for sound credit in emergency 
or when special elemands arise. The elepositors cover every phase 
of society. Rich and poor alike are shareholders, anel no one institu- 
tion or system includes such an army of individuals. 

Any special privilege such as is outlined above would be availed of 
immediately in Philadelphia alone to perhaps a million elollars and 
the movement would be immediately popular and receive the indorse- 
ment of the whole community. 

Respectfully, » Y.'m. J. Baestow. 

New Yoek, June 24, 1913. 
The honorable Chaieman of the Finance Committee, 

The Senate, WasJiington, D. C. 

Sie: The preliminary drafts of your new currency measure seem 
to embody a careful and almost exhaustive study of the subject. 

Judging from the criticisms of the press in general, in which the 
writer concurs, there is one substantial and general factor lacking 
to make the measure thoroughly popular and workable. The advice 
of those most directly interested and most competent to know is in 
no measure sought by the ruling central association. 

My humble recommendation, offered to you solely as a suggestion 
for what it is worth to you, is that there be added to your measure 
an honorary advisory board, without power and without salary, to 
be composed of acknowledged captains of their trade from whatever 
sections of the country they happened to be got and without especial 
political affiliations. Perhaps two great bankers acknowledged first 
in their line, two manufacturers of the same caliber (corporation or 
private heaels), two agriculturists, one railroad, one expert foreign 



SUGGESTIONS EESPECTING PEOPOSED CURKENCY EEEOEM. 97 

and domestic shipping man, and two political economists, or theo- 
rists on finance. Such a board to hold itself ready to be called upon 
by the central association, perhaps only on extraordinary occasions, 
or whenever they see fit to call themselves together, and to make 
their expert recommendations to the central association at Wash- 
ington, to be acted upon, made use of, in whole or in part, or not at 
all, as the central association sees fit. 

Membership to such a board would be esteemed highly honorable, 
and would assure the central association the best first-hand practical 
expert and unbiased knowledge which the proposed Government 
central association members at a $10,000 per annum salary are by 
no means assured of having. 

The appointments on this committee might be arrived at by vote 
of the associated chambers of commerce and leading boards of trade 
throughout the country, the power to decide to rest with the 
Government committee, as it assuredly should. 

Respectfully submitted. 

V. Sydney Rothschild. 



June 27, 1913. 

Suggestion of V. Sydney Rothschild, of New York: 

The proposed section to be added to the Federal reserve act enti- 
tled '^Honorary advisory council.^' 

There is hereby constituted an honorary advisory council to the 
Federal reserve board to consist of at least 12 members, so selected 
as to be broadly representative of the banking, industrial, agricul- 
tural, commercial, manufacturing, and transportation interests of 
the United States. 

The members of such council to be appointed, one by vote of each 
chamber of commerce from those cities or districts which are to be 
designated as Federal reserve cities or districts, of which, as herein- 
before specified, there are to be at least 12. 

The council shall convene immediately after its appointment, 
organize, select its chairman and secretary, prepare to serve for the 
term of one year, subject to reelection by its chamber of commerce or 
subject to removal or recall at any tune for cause by its chamber. 
Where selections are made to fill vacancies they shall be for the bal- 
ance of the unexpired term, but otherwise for a full term of one year. 

The members of the council shall receive no salary or any payment 
excepting reimbursement for traveling expenses necessarily incurred 
in connection with work of the council. 

The council shall meet at the city of Washington twice a year and 
shall render semiannual reports of its proceedings to the President. 
Other meetings of the council may take place at any time at the call 
of the President, the Secretary of the Treasury, or the Federal reserve 
board, or upon call of its own chairman upon the request of five 
of its members. 

The council shall consider and report on such matters as may be 
referred to it by the President, the Secretary of the Treasury, the 
Federal reserve board, or either House of Congress, and the council 
may report upon any other matters affecting banking and currency 
as in the judgment of the majority of the council shall be deemed 
advisable. 

The reports of the council shall be pubhshed. 



98 SUGGESTIONS KESPECTING PROPOSED CURKENCY EEFOEM. 

Its sessions shall be public unless by a majority vote an executive 
session should be ordered. 

No officer or director of any Federal reserve bank or any stock- 
holder of such bank shall be eligible to nomination to the advisory 
council, and if any member of the council should become an officer or 
director as aforesaid, same shall be equivalent to an accepted resig- 
nation from the council. 

All figures, information, and data of all descriptions at the disposal of 
any and all Federal reserve banks and the central reserve board shall 
be available for use by the honorary advisory council upon request of 
that body. 



[Telegram.] 

Hudson Falls, N. Y., June 26, 1913. 
Hon. Robert L. Owen, 

Washington, B.C.: 

Is not the insistence of bankers for provision retiring bank notes 
a disguise of elasticity downward so that they will be able to still 
exercise control over the currency of the people, notwithstanding 
your honest effort for elasticity ? Have they not made almost frantic 
efforts to contract or limit the circulating medium of an industrious 
people for nearly 40 years past by insisting on the retirement of the 
legal-tender notes by protesting vigorously against the issue of silver 
certificates, which actually constituted the currency of the common 
people ? To-day my best friends are bankers who only desire to 
lawfully get the big end of the products of industry. 

Jas. McCarty. 



Battle Creek, Mich., June 25, 1913. 
Hon. Robert L. Owen, 

Washington, B.C. 

My Dear Senator: I have read your interview following the con- 
ference with New York bankers. I am particularly interested to 
know just how the reserve system has been worked out by actuaries 
so that it will not result in a contraction of credit. 

I do not see how this bank can carry any less balance in Chicago, 
New York, and Philadelphia after the bill has passed than what we 
are keeping now. We have about $4,000,000 loaned to our customers — - 
farmers, merchants, and manufacturers. If we deposited $100,000, 
or one-half our capital stock, with the regional reserve banks and 
still maintained the same balance in the cities above mentioned, I 
would be interested to know how we will be able to keep the balance 
with the regional banks at $100,000 without drawing in an equal 
amount of farmers' and merchants' notes. 

There are so many theories advanced from different sources and 
by so-called experts that I am not able to follow them. What I 
wish to know is how it will work in actual experience and how I will 
be able to produce the practical result from my desk here in the bank. 
I realize that I can not keep $100,000 in two places without getting 
the same amount somewhere else, either by calling in some loans or 
securing the currency from the regional banks on assets, provided 



SUGGESTION'S EESPECTING PEOPOSED CUKEENCY EEEOEM. 99 

the transaction would show a profit to the bank. Otherwise it 
would seem we would call in the loans. 

I understand that those national banks which do not wish to identify 
with the new system and prefer to operate as State banks will be 
compelled under the terms of the bill to sell the bonds they now hold 
as a basis of circulation on the open market. This, of course, would 
mean a great loss, as 2 per cent investments would sell very much 
below par. I am frank to say that this coercive feature of the bill 
rather than the freedom of action on the part of the bank does not 
appeal to me. I realize, however, that I am at a great disadvantage 
not having the bill before me, and no doubt I misjudge many of its 
features because of lack of information. 

I shall be interested to know if there is any provision in the powers 
given the President to appoint seven men which precludes him from 
appointing skilled bankers if he so desires. If we are to have super- 
visory power over business institutions, it is necessary that that 
power be equal in ability and experience to those who control the 
enterprise subject to their dictation. The commissioner who passes 
arbitrarily on the acts of men of large experience and integrity 
unfortunately does not assume any of the risk of failure or success 
of the business, but leaves that burden on the owners of the business 
to carry out ideas and notions no matter how impractical they may 
be and yet at the same time do justice to the public and furnish 
sufficient profit as an incentive to continue the business. I am 
fearful that the men who will be willing to accept a place on the 
board appointed by the President will not meet the demands of the 
situation from the standpoint of ability, experience, and integrity 
of purpose, because generally speaking the ordinary political ap- 
pointee is a man without any purpose in life whatever. A great 
many of our States to-day are hampered by commissions of men of 
very little ability and in many instances without moral or financial 
responsibility. 

Trusting that I have not burdened you mth this long letter, but 
with the assurance of an earnest desire for complete information, 
I am, with kind regards. 
Very truly, yours, 

Chas. Austin, 
Vice President The Old National Bank of Battle Creelc, Mich. 



Banking and Currency Committee, 

United States Senate, WasJiington, D. C. 

Gentlemen : The observations and suggestions herewith submitted 
are not as from an expert financier or as a banker, but merely formu- 
lated in not a few years, from the practical experience of a plain 
business man, and being hastily jotted dowQ may have its demerits; 
trustmg, however, it may assist and stimulate your deliberations in 
some degree to a satisfactory and happy solution of a safe and prac- 
tical banking and currency system, the result and purpose of your 
assembUng. 

It is generally admitted that there is a consensus of opinion both 
with banks and business men strongly in favor of a change in our 
financial system. Yet in face of this p^ublic opinion of those that are 
most directly interested in the change, our national legislators since 



100 SUGGESTIONS EESPECTING PROPOSED CUEEENCY EEFOEM. 

the adoption of the present national-bank system have been aimless 
and helpless as though an incubus was hovering over their mind, as 
uncertain of their course when the subject of a change in the financial 
system is brought before them as a sailor without a rudder or com- 
pass. Even the resumption of specie payment was staved off for 
years because dreading some great calamity would befall the financial 
world, when the Government had it within its power to crush every 
Wall Street banker who was depreciating the credit of the Govern- 
ment and holding up the price of specie which the banker had to buy 
at a premium, and the Government received all this specie free from 
duties collected upon imports — therefore able to furnish coin or 
specie to legitimate buyers for less premium; consequently ruining 
the bankers' business in that line, and, rather than their capital 
should remain unproductive of profit, converting their specie into 
interest-bearing security. 

Consequently the Government was not molested in resumption 
when they, the bankers, were threatened with such a course of pro- 
ceedings. 

If the business interest of the country had had no previous ex- 
perience with other systems, with specie reserves that were satis- 
factory, then there would be a reason for hesitation. The principal 
objection to the former methods in vogue in banking was some of 
the nondescript banks chartered by careless and inexperienced legisla- 
tors of many States, whereby unreliable paper money was put in 
circulation. The nonuniformity of the appearance of the paper money 
then was objectionable. The uniform appearance of national bank 
currency has been a great advance on the former bank paper money. 
The principal defect in the present banking system is the loss of con- 
fidence by depositors when there is a stringency in financial aiiairs, 
locally, sectionally, or all parts of the country; consequently it is 
a constant menace to the business interest of the whole Nation. When 
banks have greatest needs for deposits the same is withdrawn, and 
banks are compelled to refuse further loans; and also to recall those 
that were made in good faith for considerable time; consequently 
there is consternation in every community, large or small, because of 
the closing of factories and shops and paralyzing trade generally and 
depreciating values of all commodities of whatever nature — stocks, 
bonds, produce, and all manufactured goods — and labor, because all 
are in excess of demand — and ready money makes the demand — and 
ready money in all lines is the one thing needful; consequently, in 
order that deposits be not withdrawn and continued flowing in during 
the usual ratio of business of the various banks throughout the 
country, the most essential thing needed is to establish confidence 
with depositors — that their money is safe beyond all peradventure — 
the true and only foundation on which good banking is based. Having 
lost the confidence of its patrons, the strongest institution, be it con- 
trolled by a Morgan or the Rothschilds, will be a failure. To establish 
that confidence uniformly and continuously the system must be 
under national control. This is not exclusively Bryanism, but a 
recognized requisite for years past, by depositors as well as the 
bankers, who value the confidence of their friends; and that is a 
guaranty of deposits and also an ultimate redemption of the circulat- 
ing medium — the latter as demonstrated by the popular confidence 
in the paper money of the national banks. 



SUGGESTIOXS EESPECTING PROPOSED CUEEEIs^CY EEFOEM. 101 

This guaranteeing of deposits should not be by the Government 
nor any of the States, but by a number of banks situated within a 
certain district of a State, in order that they may be readily exam- 
ined and promptly controlled (as a military company is a part of a 
large army), every State basing the number of districts according to 
the number of banks in each State, such district having one central 
bank of control or set of officers thoroughly familiar with banking, 
whose sole business shall be to have oversight, by having bank exam- 
iners familiar with local values, financial standing, and methods of 
business of the principal patrons of such district banks, and when 
any one or more of such banks violates the rule, law, or customs of 
good and safe banking it should be taken over by the banks of the 
district and reorganized, and after winding up the business of such 
bank and there is a surplus after paying all expenses it is to be paid 
to the old set of stockholders, and if there is a loss shown it is to be 
borne by the other banks within the district, thereby guaranteeing 
the depositors against loss. All such reports of bank examiners to be 
also reported to the national controller of currency and banks and 
district banks. 

The next defect is the complicated currency and misnomer of a 
gold standard. We have greenbacks which represent a Government 
debt without interest, consequently of no value to investors as indi- 
viduals, trustees, insurance, or banking and is without doubt the most 
objectionable of all the circulating mediums. We hear some say, 
^^It is good; everybody takes it as money." If so, why not have all 
of our money in greenbacks ? Save interest on bonds, do away with 
gold and silver certificates and gold and silver coins. If a part, why 
not all? The greenback has no intrinsic value. The national bank 
currency is not a legal tender and the basis of its security, Govern- 
ment bonds, are unstable and unreliable value as a permanent invest- 
ment, depreciating in the open market as the period of maturity draws 
nigh. Neither are silver certificates a legal tender, nor have they the 
intrinsic value as represented upon the face of the bill. 

With the hundreds of millions of dollars in gold in the coffers of 
the Government represented by the gold certificates in circulation, the 
latter would be a ready means of converting the present national 
bank capital (the security bonds deposited with the Government) into 
a gold reserve banking system as herewith suggested, thereby sub- 
stituting the gold for bonds and at the same time retiring the gold 
certificates and in the course of a few years retire the silver certi- 
ficates and also the greenbacks, and no doubt the better judgment 
of our lawmakers will then see the necessity of a uniform paper cur- 
rency. Consequently there will be a gradual merger and adjustment 
to the new financial system without disturbing the normal business 
of any section of the entire country. 

The true and only standard for banks of issue is a gold reserve, the 
measure of value in money for all leading nations of the world. 
Require, under a new system of banking, all banks to have a gold 
reserve of one-third for all outstanding paper monev. For iastance, 
if a bank's capital is $100,000 they shall have the privilege of loaning 
their paper money as the business of the bank requires, be it $1 or 
$300,000, and in case of extreme necessity may obtain money upon 
certified (by district central bank) commercial assets from banks in 
anv bank district of the United States. If the business of the com- 



102 SUGGESTIONS RESPECTING PEOPOSED CUREENCY EEFOEM. 

munity, city, State, or entire country is slack and the deposits are 
sufficient to supply the demand for loans and old loans are canceled, 
then the paper money of the bank may be withdrawn from circula- 
tion (as opportunity offers) and thereby also avoid the payment of a 
premium upon gold in replenishing the reserve from time to time. 
Said premium upon gold will be a natural result of a gold-reserve 
system; the constant demand for gold for bank reserve will enhance 
its value over paper currency to a nominal per cent; and as opportu- 
nity offers the required gold reserve be invested in interest-bearing 
securities. When there is a revival of the business and the loaning 
of the bank's paper is more profitable than holding securities the 
latter can be sold m the open market and reinvested in a gold reserve. 
Consequently, you have an elastic currency system and a financial 
panic becomes a thing of the past. 

This gold-reserve paper money is to be printed by the Government 
as at present. Every denomination should be of a uniform appear- 
ance for all the banks, except the indication of their locality, signa- 
ture of the officers, district, and special serial numbers for each of 
said banks, with three duplicate stubs for every lot serial-numbered 
paper money issued to such individual banks, one stub to be filed by 
the Government, one by the central bank of the district, and one by 
the bank that issues the paper money, thereby indicating and identi- 
fying all notes in circulation, each one redeemed, and all those out- 
standing, worn out, or destroyed; also preventing forgeries, raising 
denominations, and detecting of spurious and counterfeit bills, and 
those bills printed in some instances from stolen Government plates. 
The profits, which in the aggregate are considerable, accruing from 
such unredeemed notes to go to the Government as a special fund to 
reimburse such district bank or banks prorata as such funds permit 
for guaranteed deposit losses by the associate banks of the district. 
Should such fund exceed the losses of said banks from year to year, 
the surplus should be turned into the National Treasury. 

There should be an up-to-date and uniform system of bookkeeping, 
simple, exact, and comprehensive at a glance at the page of any 
account, showing the balance to a penny at the close of each day, 
requiring sworn statements from officials of banks when requested 
by the central bank or associate banks or Government, besides the 
regular statements, and also authorized examiners by central-bank 
officers, each week or oftener, as the financial conditions deserve. 
In the foregoing, it will be observed, a bank with no more capital 
than $100,000 of a present national bank would have $205,000 more 
available currency, yet all based upon gold reserve and every dollar 
redeemed in gold when demanded. 

The foregoing observations are based principally upon the manner 
in which the State Bank of Indiana, chartered in 1835 for 20 years, 
and the Bank of the State of Indiana, the successor of the former, 
chartered in 1856, bankers, and the former business men of those 
years — men who were the associates in banking and business of 
Hugh McCullough's father and Gov. A. G. Porter's uncles; both of 
these men were controllers of the present national bank system. 
Had the latter been conducted on a gold-reserve basis, there is no 
doubt but what these men would have recommended a guaranteed 
clause in chartering such institutions, and conducted in the manner 
of the old Bank of the State of Indiana, under whose regime for 20 



SUGGESTIONS KESPECTING PKOPOSED CUEEENCY EEFOEM. 103 

years not one depositor lost a dollar, notwithstanding there were 
irregularities, but were remedied, as heretofore mentioned, and not 
a holder of the paper currency nor a depositor lost thereby. 

It may be urged by present day financiers that there was not 
the volume of business transacted by a single firm then that there is 
to-day. The firm with which the writer was identified for several 
years, and whose transactions were with New Orleans (which city 
was the second in population and first in commerce up to the year 
1852), Baltimore, Philadelphia, New York, and Boston, amounting 
to over a million dollars per annum — a very large business, con- 
sidering the methods of the years 1840 to 1871 — the years of the 
firm's existence. In the years 1856 to 1861 they obtained loans 
from fifty to sixty thousand dollars from each of the City Bank of 
Hartford, Conn., and the Providence Bank of Providence, R. I., and 
other single banks at the rate of 2 and 3 per cent mterest per annum, 
with the proviso that the borrower protect against redemption 
during the term of the loan — sometimes three or four months. The 
additional cost of the loan in that event was the premium on gold, 
which the bank was compelled to pay in the open markets for gold 
coin, which made the money brokerage business at that time quite 
profitable, drawing the gold with bank currency free and selling at a 
premium. 

The firm in question was shown a preference in large loans and a 
low rate of interest because of their excellent business rating and the 
wide distribution of the currency which was usually in crisp new bills, 
therefore readily stamped by the borrower for identification in pro- 
tecting it for the provided gold redemption premium. The firm's 
reputation in the purchase of produce lent an added confidence to the 
currency in all the communities remammg sometimes several years 
as a medium of exchange, more profitable to the bank that issued it 
than the loans made nearer the locality of the bank, because avoiding 
its frequent redemption and the mere likeliliood of loss and bemg 
destroyed, therefore a clear profit, an important factor to be considered 
in years of banking. The same feature m reference to a national 
gold reserve currency would be a source of greater profit because of 
varied and more wide distribution, but it would be necessary to 
enact a severe penalty for ofiicers and employees of banks who may 
go in collusion with money brokers by assorting the paper currency 
for any particular bank or banks which would prove to be a great 
annoyance and loss to such banks generally, because being compelled 
to redeem its paper money frequently. Sixty years ago banking 
business was regarded as the safest, there being less failures than any 
other business, and now still less than formerly, but for larger amounts 
because more largely capitalized. The prime cause for the failure of 
nine-tenths of banks is brought about Avhen the funds of banks are 
diverted from the legitimate methods of banking, and in many such 
cases by the president or some of the executive board of directors, 
who control the majority of the stock, use the funds of the bank for 
private enterprises, in their name, but more frequently by proxy, 
and cover the transaction and true nature of the business, and princi- 
pals concerned are not divulged by the subordinate officers of the 
bank because overawed by their superiors and fear of dismissal. 
The ''Walsh" and Heinzes of Chicago and New York City do not 
monopolize such transactions, nearly every small city in the United 



104 SUGGESTIONS EESPECTING PROPOSED CUEEEN'cY EEFOEM. 

States has their counterpart in a smaller way, they all have their 
reputed wealthy men, who with a few thousand dollars and a good 
friend to furnish an additional amount as an accommodation, obtains 
the majority of stock of a bank with $50,000 capital and thereby gets 
control, and has the exclusive say about the loaning or disposition 
of seven to nine hundred thousand dollars, sometimes more, and as 
in the case of the "Heinzes" they had control of twenty to thirty 
millions of dollars of New York deposits with only a million and a half 
of their own money invested; these are not the exact figures but an 
approximate. The borrowing of money by bank officers or any 
employees of a bank with which they are indentified should be 
curbed or entirely prohibited, and when loans are contemplated to 
any of the executive board the matter should be more thoroughly 
scrutinized and investigated, and severe penalties attached to such 
violations of regulations and dismissal from service of bank, thereby 
safeguardmg the stockliolders and the depositors. Instances are 
extant when such officers have taken over in the manner described 
defunct, hazardous, and even disreputable business to recoup them- 
selves, and indirectly the bank, or sometimes assisting an incompe- 
tent political friend, several instances in a single community, as 
Previously mentioned, and when the venture is disastrous the stock- 
old ers and the depositors meet the loss. 
Respectfully submitted for the committee's consideration. 

P. J. Emmers. 
Lawrenceburg, Ind., June 12, 1913. 



The Banking and Currency Committee, 

United States Senate, Washington, D. C. 

Gentlemen: This communication is supplementary to one of a 
few weeks previous suggesting certain provisions in regard to banking 
and currency. The former was prepared hastily, because of the early 
impending bill before Congress, and therefore precluded the attention 
it deserved and duly emphasizing several of its provisions. 

It is almost an impossibility for the present day bankers and busi- 
ness men — so far removed from conditions prevailing previous to the 
Civil War — to be en rapport therewith and reason therefrom. 

As every business man, banker, and financier knows, or should 
know, that every phase of the present banking and currency system 
was distinctly a war measure, an event of 50 years past. 

The attempt to popularize the first currency issued then (the seven- 
thirties in small denominations) defeated itself as currency, because 
interest bearing, therefore hoarded. The first greenbacks issued (called 
^'demand notes"), one of the first $10,000 remitted to Cincinnati, was 
received on deposit by a prominent banker, under protest, from my 
predecessor in business. The same banker accumulated $275,000 of 
the same currency and sold them when gold was worth nearly 3 to 1 in 
paper currency. Most of the Government bonds were mere promises 
to pay. Bankers gave preference to some bonds that were to be paid 
in gold to secure the redemption of national bank currency. The 
legal tender clause pertaining to the large amount of greenbacks in 
circulation, national bank currency unsecured by gold redemption, 



SUGGESTIONS EESPECTING PKOPOSED CUREEXCY KEFOEM. 105 

and the mere promise-to-pay bonds were the principal factors for the 
high premium upon gold previous to the resumption of specie pay- 
ment. 

The oft-repeated axiom ^^ supply and demand" regulates ^^ prices 
and quantity" (provided they are not obstructed in their legitimate 
channels of trade). This law governing the business world is as 
unerring and inexorable as ^'the tides of the sea" or that ^Svater will 
find its level" are in the domain of nature. 

As the conditions of the foregoing are immutable, the same per- 
tains to gold, a deficiency or a surplus of which affects alike for weal 
or woe the commercial and financial interests of the leading nations 
of the world. Other commodities are no less influenced by it than is 
the general cereal market by that sensitive thermometer, '^the staff of 
life," wheat, because of its relation to the sustenance of human life. 
Whenever the present 7,400 national banks or more under a new 
system are converted into a gold reserve redemption basis for its 
paper currency, from that time forward there will be a nominal pre-, 
mium upon gold either as specie or coin, because of the daily demand 
on the banks under a new system for the redemption of part of its 
circulating paper currency and, to keep up its ratio of reserve gold, 
compelled to go into the open market and buy it. In consequence of 
this change of the banking system the former business of bankers and 
brokers will be revived, viz, the assorting of paper currency upon the 
various branches of a district or districts, banks drawing the gold 
therefrom and selling the same in New York City or any other place 
to the best advantage. With other obligations and restrictions the 
manager of a bank will not have that in the nature of a sinecure, but 
requiring constant care and alertness to husband the resources to the 
best advantage and safety of all concerned. Such conditions would 
prevail all over the United States under a new system of banking. 

The suggestion in the former communication — permitting a single 
branch of a group of district banks to issue $3 in paper currency to 
$1 of gold in its vaults, even under supervision of central district 
bank and Government, as at present — seems at first thought start- 
ling, because of a possible reckless issuance of paper currency. What 
upon its face appears a special privilege exacts unusual obligations 
and imposes restrictions to safeguard stockholders, redemption of 
bank's outstanding paper currency, and guaranteeing deposits (if 
the Government insists on it for its own funds, why not a greater 
reason for a poor individual with a lifetime's saving at stake ? ) , restrict- 
ing business to legitimate banking within the territory of its environ- 
ment; otherwise only by special permission from central district 
bank indorsed by Government Comptroller of Currency. It is the 
candid opinion of the writer (a Republican), had the idea of guaran- 
teeing bank's deposits originated with managers of the Republican 
Party, the whole rank and file would favor it. The fact is that it 
would establish confidence in every bank in the United States, as it 
has in the national-bank currency since it has been in circulation; 
and confidence is the greatest asset a bank can possibly have. With 
it and an empty vault it will still receive deposits ; without confidence 
its vaults may be full to overflowing, yet the public will draw out its 
deposits, and the bank will be out of business and, to a great extent, 
embarrass its former patrons. 



106 SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

In order to facilitate the thorough examination and control of the 
various branches of district banks by the central district bank 
examining officers residing in and familiar with the value and nature 
of property in the district, so that an examination is to some pur- 
pose, Government appointments should have the same idea in view — 
not a man from Maine for Louisiana, and vice versa, nor a man from 
the mines of California to the manufacturing districts of Cincinnati, 
Ohio. The 700 or 1,000 banks to compose the n^w system of banks 
should be divided into groups of not less than 40 nor more than 75 
branches to the district, thereby to more readily facilitate the simplify- 
ing of the examination of each, each from time to time to report to 
central district bank and to Government, as at present. 

As the writer sees it, simplicity commensurate with trustworthi- 
ness and safety of a new banking and currency system is one of the 
first requisites. The new Treasury note recently suggested will not 
supply the deficiency of the present system; the country has had 
too much of such makeshift currency. The new system must put 
every bank on a gold-reserve basis for the redemption of its paper 
currency and the Government withdraw from circulation every kind 
of outstanding paper money and, if necessary to do so, issue 3 or 3^ 
per cent bonds, and then the finances will be on a sure foundation. 

With such conditions and a uniform bank currency and proper 
laws enacted to govern such banks and the entire wealth of the 
Nation to back it, our financial condition will be superior to that of 
England, Germany, or France. 

Wishing you an early settlement of this matter for the benefit of 
the entire country, I remain. 

Yours, truly, P. J. Emmert. 

Lawrenceburg, l-^B., June B7, 1913. 



Siojjx City, Iowa, June 30, 1913. 
Hon. Robert L. Owen, 

Chairman United States Senate Committee on 

BanMng and Currency, Washington, D. C. 

Dear Sir: On June 14 I sent you replies which I had prepared to 
the questions submitted by the members of your committee with 
reference to contemplated remedial legislation. I received your 
acknowledgment of these answers under date of June 18. 

I now take the liberty of addressing you again on this subject to 
say that I judge from comments appearing in the public press that 
the consensus of opinion of the business men of the country and prom- 
inent bankers of the country — those familiar with our financial 
needs — is that a portion at least of the balances maintained by 
national banks with approved reserve agents should be continued as 
a part of the legal reserve of such banks, just as indicated in my 
answer covering this point. 

I feel, too, that in all fairness the regional reserve banks ought to 
have some little voice in the selection of some of the members of the 
Federal reserve board. 

I am glad to note, too, that provision will probably be made for 
the retirement of the United States bonds-secured circulation. 



SUGGESTION'S EESPECTING PROPOSED CUEEEXCY EEFOEM. 107 

I am also pleased to note that there is disposition to adopt legisla- 
tion at this session of Congress, and trust that it may be successfully 
carried out and along the line of the present reported plan with the 
modifications as herein referred to. I hope no effort will be spared 
to this end. 

Respectfully, yours, John McHugh, 

President First National BanJc. 



1719 Glenarm Street, 

Denver, June 30, 1913. 
Hon. Robert L. Owen, 

Chairman Senate Committee on Banlcing and Currency. 

My Dear Sir : I respectfully ask your serious consideration of the 
inclosed leaflets. 

Sincerely, yours, James D. Holden. 



The Money Shortage, Its Magnitude and Blighting Influence — 
Supplemental Communication No. 4. 

The Land Currency League to Hon. Henry M. Teller, Hon. Robert 
W. Bonynge, Colorado members of United States Monetary Commis- 
sion. 

Gentlemen: The purpose of the financial measure we are advocat- 
ing is not merely to reduce the cost of currency to borrowers — it is to 
obviate the necessity of borrowing. It aims to call such a volume 
of money into existence for the use of the commercial world that 
A's money will not be required to ''finance'^ B's enterprise. 

The purpose of the measure is to deprive A of the power to exact 
''interest'^ from B for the use of an available representative of wealth. 
We accomplish this by giving B the right to obtain from the State, 
on application, a currency representative of the wealth he is now 
compelled to pledge as security to A in order to obtain a circulatiag 
medium. 

Obviously the welfare of society demands a volume of money 
sufficient to employ its full powers of production and to conserve in 
tangible form the savings of those engaged in useful pursuits. With 
such a volume in existence the industrious will acquire and own the 
money necessary to prosecute their undertakings. 

Money users are now compelled to borrow because of a money 
shortage. The State does not create enough money to answer the 
needs for money. The present supply is more than $12,000,000,000 
short of the sum required to conserve in money the savings of those 
engaged m useful avocations. 

A money shortage not only enables those who have a surplus to 
exact for its use a form of tribute called ''interest," but it enables 
financiers to reap the fruit of toil by supplyiag their neighbors with 
a credit substitute for cash — an intangible makeshift which commands 
an interest, rate in the market equal to that exacted for the use of 
gold and silver couis. 



108 SUGGESTIONS RESPECTING PROPOSED CUKKENCY EEFOKM. 

The blighting money shortage which has afflicted civilized man for 
SO many centuries is not, in fact, due to the machinations of designing 
men, but to a false economic belief that is common to rich and poor 
alike — a belief that we can not supply our money deficit without 
impairing the so-called ' Value '^ of the money unit — a belief which, 
analyzed, proves to be founded on an absurd assumption, namely: 

That prices under our present scant-money volume are normal 
and a measure that would provide a sufficiency would beget abnormal 
prices. 

Obviously the inauguration of a rational money system can not be 
expected so long as our legislators and financial guides are infiuenced 
by this preposterous belief. 

The credit constituent of our present circulating medium of cash 
and bank credit indicates the extent of the money shortage as related 
to our present restricted volume of business. As stated, it exceeds 
$12,000,000,000. 

Ours is an automatic plan for supplying this .deficit. We suggest 
a feasible and scientific system that can be inaugurated without 
disarranging business or disturbing prices. 

We gain the end by substituting legal-tender paper for the intangi- 
ble ingredient of our present circulation. 

We right our wrongs and bring order out of chaos by a single 
rational act — namely, by making the supply equal our commercial 
needs. 

The system we propose will require money owners to invest their 
surplus funds in industrial enterprises if they would have them yield 
an income — enterprises that will create a wholesome demand for all 
forms of labor. Such a system will compel the money owner to con- 
tract for the labor necessary to make his money yield an income; 
and this new call for labor will enable the worker to demand and 
receive his full share of the joint product, where now his neces- 
sities compel him to accept a wage in the determination of which he 
has no voice. 

It is a singular fact that men are rare who perceive that it is 
possible to abolish poverty from among the industrious by the single 
act of perfecting our money system. Failure to recognize this vital 
truth is due to a common lack of knowledge as to the underlying 
cause of our economic ills. Only those who perceive that the evils 
of which we complain are traceable to a single cause realize that a 
single remedy can effect a complete cure. 

The argument that sustains our claim that all economic ills are 
traceable to a single cause is based on the following facts, viz: 

Ages ago — probably under the first civil government having powers 
defined by written laws — an act was passed whose blighting influ- 
ences upon the destiny of the individual was unforeseen by those 
responsible for it and has remained undiscovered to the present day. 
This baneful statute, the evil effect of which has escaped the scrutiny 
of the student of social science, has been bequeathed by government 
to government during the intervening centuries and is to-day a 
fundamental law of every civilized nation of the earth, , "" 

This silent law — which alone prevents a just divisio*n of product — 
is the law which for ages has confined the volume of legal money to 
the coinage of the precious metals. 



SUGGESTIONS RESPECTING PEOPOSED CUEEENCY EEFOEM. 109 

Query: Why is this ancient statute alone responsible for the havoc, 
the injustice^ and the misery with which it is charged? 

Because it unduly restricts the volume of legal money, that which, 
because it is essential to the distribution of the fruit of toil, is essen- 
tial to human happiness. 

To unduly restrict the volume of legal money is to disarrange the 
industrial machinery of civilization. To cause a money shortage is 
to make the followers of useful pursuits dependent upon the individual 
for a commercial device that is a necessity to man in complex society. 
The act places the producers of a nation at the mercy of the owners 
of a scant money supply, and those who can furnish the commercial 
world with an available credit substitute. 

To unduly restrict the volume of legal money, therefore, is to 
enable a few to unjust!}^ reap the fruit of toil by exacting legalized 
tribute from the many for the use of an artificial device that is as 
essential to the distribution of wealth as labor is to its production. 
In this inherited statute, therefore, we discover the primary and 
sustaining cause of our every economic ill. To amend the law in 
the manner we suggest is to make poverty impossible by instituting 
a normal industrial condition. The proposed amendment alone will 
give the fruit of toil to these who create it, because it will cut off the 
present unjust income of the nonproducer. 
Very respectfully, 

Charles M. Bice, 
Webster Ballinger, 
Richard Wolfe, 
James D. Holden, 

Committee. 
Denver, Colo., June, 1909. 



Scientific Money — Supplemental Communication No. 5. 

The Land Currency League to Hon. Henry M. Teller, Hon. Robert W* 

Bonynge, Colorado members of the National Monetary Commission. 

Gentlemen : In the opinion of the members of the Land Currency 
League, the vital question confronting the financial student and the 
currency reformer at this time is: ^' What principle should govern the 
issue of money by the State ?" 

First. Should it be ^'paid into circulation" for public improve- 
ments, for extinguishing the public debt, and for defraying the 
expenses of the National Government ? 

Second. Should it be ^ loaned to the people" on pledge of security, 
by '^Government banks," at a nominal charge? 

Third. Or should a sufficient volume of representative currency be 
called into existence by the owuers of such values as the State may 
monetize with absolute safety by the certificate process ? 

We offer the following argument in support of the proposition that 
of the three methods of issue enumerated the last named, alone, is 
scientific and defensible. 

It will not be denied that in the last analysis the true method of 
issue depends upon what money is. 

We do not answer the question, ' ' What is money ? " by replying, ' ' It 
is a creation of law." This answer only explains how it is brought 



110 SUGGESTIONS EESPECTING PEOPOSED CUKKENCY EEFORM. 

into existence. Nor do we define its character by saying, ^'It is a 
medium of exchange." This reply simply defines one of its three 
functions. In fact, money acts as a medium of exchange in a 
secondary capacity. 

What, then, is money ? 

In common parlance it is '^ a representative of wealth." If to this 
popular definition we prefix the compound word ^'legal-tender," we 
nave a comprehensive definition indicating its primary character — 
that of an authenticated debt-paying device. Concisely and generi- 
cally defined, money is ''a legal-tender representative of wealth." 

For the reason that it is an artificial representative of wealth, 
money should be issued by the State as such. It should be issued to 
wealth owners on application for the reason that none but wealth 
owners can be entitled to a wealth representative. They alone have 
earned the right to demand such a symbol from the State for com- 
mercial uses. Hence a scientific issue of legal money can not be 
disasscoiated from individual wealth. All existing money was issued 
in accordance with this principle. 

The State, it is true, has the power to create and issue legal money 
without reference to property; but its power to do and its duty in 
the premises are essentially different propositions. Obviously there 
is no relationship between the power of the State to create money 
and the act of disbursing it. They are separate and distinct functions 
or duties. It by no means follows that because the State can create 
bona fide money at will it may arbitrarily use what it creates in 
discharging its obligations. 

Since money is a necessity to the individual, it is evident that a 
system of issue can not be scientific which makes the quantity 
dependent upon the discretion of public officials. This truth alone 
invalidates the two methods of issue first enumerated and vindicates 
the third. -Obviously the monetary rights of the citizen, as well as 
his other rights, should be clearly defined in the written law. 

The conclusive reason why the plan of issue we suggest is superior 
to all others is that it is the only defensible method of making the 
citizen independent of those who may own the stock of legal money. 
A sufficiency being essential to a just distribution of product, money 
should be at all times accessible to the wealth producer. If for any 
reason this essential can not be readily obtained in the market in 
exchange for products, or free from the exactions of the individual, 
those to whom it is a necessity should be able to obtain it from the 
fountain head — the State — complying with necessary regulations. 

Nothing is more certain than that our financial ills are due to the 
fact that too small a percentage of individual wealth is given currency 
representation in the circulating medium. And if under the measure 
we suggest land owners should call new money into existence in 
quantity sufficient to engage our full powers of production, it is clear 
that no other source of supply would be necessary. The imperative 
need is a sufficiency, and the proposal to confine the issue of such a 
volume to the owners of our most stable, permanent, and widely dis- 
tributed form of wealth is simply one of expediency, safety, and 
economy. 

Because a currency representative is essential to the welfare of the 
producer, his right to demand and receive it on application should be 



SUGGESTIOXS RESPECTING PROPOSED CURREXCY REFORM. Ill 

recognized by the State because in complex society his needs can not 
be otherwise logically and scientifically supplied. 

Since money commands individual wealth in market, how can those 
whose wealth it commands be protected if the equivalent may be 
issued by the State otherwise than as a representative currency? 
How can the interests of the producer be adequately protected if this 
potent agent may be ''paid into circulation" at the pleasure of public 
officials? Obviously there should be a natural limit to the volume, 
and the official issue should be scrupulously guarded by scientific, 
equitable, and inflexible rules. 

In conclusion, we most respectfully suggest that in the proposal to 
monetize land values, at an arbitrary valuation, by the certificate 
process, on application of the owner, at cost of issue, we are proposing 
for your thoughtful consideration a fiscal system which responds to 
the every requirement of scientific money. 
Very respectfully, 

Charles M. Bice, 
Webster Ballinger, 
Richard Wolfe, 
James D. Holden, 

Committee. : 
Denver, Colo., October, 1909. 



HoBART, Okla., July 2, 1913. 
Senator Robert L. Owen, 

Senate CJiamher, Washington, D. C. 

Dear Senator: I trust you will accept my most sincere thanks- 
for the copy of the "Federal reserve act" (S. 2639) sent me just 
recently. I appreciate it highly, for I am a sincere well wisher of 
the administration, and since reading your masterly argument on 
initiative and referendum I have become a sincere admirer of you as 
a Senator. For having studied reform principles of Government for 
25 years, not with a view to get and hold office, but in the light of 
what I conceived to be the actual good of the whole body of the 
people, a study of the bill was to me very enticing. 

And, Senator, considering my abiding interest in the question, my 
long and serious study of the same, I am going to volunteer a few 
suggestions, possibly a criticism or so, and I may venture to ask one 
or two questions, which I trust you will not thrust aside as to the 
ordinary (?) constituent. That you may know that my criticisms 
are not captious, I desire to remark just here that there are many 
admirable features connected with the bill, and many principles in- 
volved in it which I heartily indorse. That it is vastly superior to 
the old national-bank act and system no honest man can deny, it. 
seems to me. 

First. On the principle of the Federal reserve board you and the 
committee are right. Stand by your guns. Senator. Don't let the 
howl swerve you a hair's breadth The people are with you on that 
principle, sure. 

Second. The principle of permitting State banks to subscribe to 
the stock of Federal reserve banks is right. Stand by it. 

2736—13 8 



112 SUGGESTIONS EESPECTING PKOPOSED CUKKENCY EEFOEM. 

Third. The principle of loans on farm lands is absolutely correct 
and sound. Stand by it, and the folks will stand by you. 

There are several other minor principles of the bill that I unre- 
servedly indorse, but shall not mention there. 

But, Senator, there are a few principles of the bill and several 
methods proposed by it that, to my mind-, are wrong, and could be 
vitally improved, I will enumerate same, as follows: 

First. Line 12, page 2, beginning with the words ^'the district thus 
created," etc , is, to my mind, vicious both in principle and method. 
Why should not the Federal reserve board have the right to do those 
things mentioned in lines 12 and 17, page 2, without the ^ 'joint appli- 
cation made by not less than 10 national banks " Would not this 
put too much power in the banks, would they ever extend the sys- 
tem or districts ? Would it not be too much power concentrated in 
individual interest's hands? I think so. 

Second. Line 25, bottom page 3, is, I think, vitally wrong. The 
paid-up and unimpaired capital with which to start should be not 
less than $2,000,000, certainly. But I believe $1,000,000 would be 
far better. This, of course, I grant, would of necessity cause a 
change in the bill as to the number of reserve cities, etc. I fear that 
if the minimum limit for the organization of Federal reserve banks is 
absolutely fixed by the statute at $5,000,000, it would prepare a 
way for those vast combinations of capital that have been such a bane 
to all financial laws since the Civil War. 

Third. I think line 6, page 4, appropriates entirely too much money 
to the organization committee. Fifty thousand dollars would be am- 
ple, it seems to me. 

Fourth As to section 3, page 4, at line 16, this is not sufficiently plain 
and specific. Does line 16, page 4, mean exactly what it says — that 
^'each Federal reserve bank may establish branch offices" ? Does it 
mean offices or branch banks ? And if it means offices why do lines 
19 and 20, section 3, page 4, say this: ^'Provided that the total num- 
ber of such branches ( ?) shall not exceed one for each $500,000 of the 
capital stock of said Federal reserve bank." I think the context 
clearly shows the meaning to be branch banks and not branch offices, 
and the bill should be so corrected. It is ambiguous, as I view it, in 
its present shape. 

Fifth. Section 4, on page 7, beginning in line 25 with the words, 
''The Federal reserve board shall have," etc., down to line 5, on 
page 8, announces not only a vicious principle, but a more vicious 
method. The above-referred- to lines (as you will see from the bill) 
refer to the "directors in Class B" in "Federal reserve banks." 
And by this portion of section 4 power is given the "Federal 
reserve board" at "its discretion to remove any director of Class 
B" when it is made to appear that such "director" does not "fairly 
represent" the "commercial, agricultural, or industrial interest of 
his district." You will note that the Federal reserve board has no 
such power in reference to "directors" in Classes "A and C." This, 
I am sure, was inserted in the bill for the protection of the "commer- 
cial, agricultural, and industrial" classes, and in that I fear is the 
"joker." I am afraid directors in Class B would be used as a "goat." 
The words "fairly represent" (line 3, p. 8, sec. 4) should certainly 
be given definition. See. 

Sixth. Why should the salary of the Comptroller of the Currency 
as an "ex officio" member of the reserve board be increased by 



SUGGESTIONS RESPECTING PEOPOSED CUREEXCY EEFOEM. 113 

$5,000 (see lines 8, 9, 10, p. 16, sec. 11) and not the Secretary of the 
Treasury and the Secretary of xlgriculture. The two last named 
are members ex officio of the Federal reserve board, as well as the 
comptroller (see line 25, p. 15, sec. 11). 

Seventh. Lines 8 and 9, page 14, of section 10 is very vicious. It 
vests too much discretionary(?) power in the hands of the Federal 
reserve board. It should have power, possibly, but that power 
should be hedged about and safeguarded by plain words m the act 
itself. See. 

Eighth. Subdivision C of section 12 needs expanding, and its 
verbiage needs defining. I think I know the well-meaning purpose 
of this section. But men (even able men) do not always choose 
apt language to express a well-meaning purpose. 

Ninth. Lines 22, 23, and 24, on page 23, in section 16, need amend- 
ing, so as to take away the discretionary(?) power as to the interest 
charge and made mandatory. I see no earthly reason for the pro- 
viso contained in lines 1 and 2, top of page 24. 

Tenth. Section 17 is faulty in several particulars (p. 24). The 
amount of Federal reserve notes issued should be fixed at $1,000,- 
000,000 instead of $500,000,000. Then, lines 20, 23, 24, and 25 of 
section 17, page 24, announces and again puts in vogue the old fos- 
silized principle of allowing a Government (a sovereignty) to issue 
notes, not money, and then makes those notes not a full legal tender 
for all debts of every kind, public as well as private, but then (God 
save the mark), in this twentieth century makes those notes redeem.- 
able in other moneys. This is abominable. This is going back to 
the fourteenth and fifteenth centuries. And this, too, by progres- 
sive Democrats. Surely you will not finally do this. If these 
banks are to be used as Government fiscal agents and distributing 
agents, why not let the Treasury notes not be notes, but absolute 
money, made a full legal tender for all debts, public and private. 
England did this same thing just after her Napoleonic wars, and 
France did the same just after the Franco-Prussian War and paid 
a war indemnity thereby to Germany of $1,000,000,000 in an incredi- 
bly short time. And both nations have never witnessed such an 
unexampled era of prosperity. It is a criticism on modern progres- 
sive Democracy to put such fossilized ideas in a modern currency 
bill, and I certainly hope, I can not think, it will finally be done. 
To make either a note or real money redeemable in another money 
has given bankers and all money changers in all ages of the world 
a power (by cornering the redemption money) that has done more 
harm than all the wars, pestilences, and famines that have ever 
cursed this globe. 

It is an injustice to the common people, a blur on the escutcheon 
of democracy at this day and age to turn the wheels of progress 
back 500 years to medieval ages. The Supreme Court of the United 
States in two well-considered cases has decided that Congress has 
the power ' 'both in time of peace as well as war " to issue such money, 
and at the time of rendering the decision was composed of a lot of 
old standpat and fossilized Republicans. Pray have the committee 
change this. Let's go forward, not backward. See? 

Eleven. The section on bank examiners and examinations could 
hardly be improved upon. If so, I have failed to discover it, with 
my somewhat casual study of the act. The supervisory powers of 
the Federal reserve board are in the main fine. 



114 SUGGESTIONS EESPECTING PROPOSED CURRENCY REFORM. 

Twelve. The principle announced in section 27 (also sec. 28), 
page 38, is par excellent. But the terms of such loans certainly will 
be changed some. The committee certainly are practical business 
men, sufficiently to know that a loan to a farmer for no longer time 
than nine months is, practically, a denial of the rights to borrow from 
the banks so far as the farmer is concerned. While I am unalterably 
opposed in all civil as well as criminal statutes to large grants of 
discretionary powers in the hands of men (however good they are), 
and in favor of fixing such power by statute or rule, yet this is one 
instance where I think the committee should grant some discre- 
tionary ( ?) power (as to the time of farm loans) to the banks them- 
selves with a minimum limit. See ? 

On lines 1 to 11, page 40 (as to foreign banks), I suggest this little 
amendment (this is suggested to my mind from my training as a 
lawyer) : And that is, a clause should be inserted in the charter of all 
banks that establish foreign branches binding them to submit to the 
control set out in lines 1 to 11, page 40. 

I suggest this to avoid legal complications if suits should have to 
be brought. See ? 

There are some other cricisms of particulars that I have on the 
bill, but I have possibly encoached on your valuable time too long 
now. 

I have made my criticisms by line, section, and page from the bill 
you sent me and hope you have a like paged and numbered copy 
before you when you peruse this. 

Will there be hearings on the bill ? If so, and if it would not be pre- 
sumptions (?), I should like to go before the committee and discuss 
and counsel together with them on some matters. It is a subject I 
have given 25 years of study and thought and reading. I will appre- 
ciate a reply. Senator, if your public duties do not prevent. 
Respectfully, your friend, 

H. D. Wood, Attorney at Law. 

P. S. — Would not the bill be improved by adding a section or so 
(more specific) as to clearing-house certificates, stock exchanges, and 
interlocking directorates (made more clear) ? If these things can 
be legally included in the bill, which I seriously doubt. See ? 
Respectfully, 

H. D. W. 



July 3, 1913. 
Hon. Robert L. Owen, 

CJiairman Committee on Banlcing and Currency, 

United States Senate. 
My Dear Senator: Inclosed herewith I beg to submit for the 
information of your committee a letter which I have received from 
Mr. M. S. Woodcock, president of the First National Bank of Cor- 
vallis, Oreg., which speaks for itself. I desire to indorse the writer 
as a man who is thoroughly familiar with the subject of which he 
writes, and whose deductions are reasonable and worthy of con- 
sideration. 

Respectfully, Harry Lane, 

United States Senator. 



SUGGESTIONS RESPECTING PEOPOSED CUERENCY REFORM. 115 

CoRVALLis, Oreg., June 17, 1913. 
Harry G. Lane, 

United States Senator from Oregon, 

Senate Uhamher, Washington, D. C. 

Dear Sir and Friend: One of our financial journals^ the Pacific 
Banker, calls attention that Secretary McAdoo has called bankers 
George M. Reynolds and E. D. Hurlburt, of Chicago, to consult with 
regard to certain provisions to be incorporated in the new currency 
bill. 

Owing to the long delay which has occurred in considering legisla- 
tion by Congress so as to correct defects in our monetary system, it 
occurs to me that the delay occurs because proposed laws do not 
contain provisions which will relieve and aid all parts of the country. 

I have therefore concluded to take the liberty of inflicting you 
with some suggestions which I am certain have been overlooked. 
Had these suggestions been provided for and added to those pro- 
visions of the proposed laws suited to the financial institutions in 
the large centers, I am satisfied that such laws would have met with 
hearty support from all sections of this country. 

The information and facts upon which monetary or banking legis- 
lation is founded comes from the large financial centers, expressing 
the needs of those communities, without any consideration for the 
needs of the agricultural districts. 

It occurred to me eminently proper, therefore, to mention the 
needs of other and different locations, and particularly of the West 
and agricultural districts. 

The Aldrich system has been much considered, but its provisions 
are devoted entirely to the relief of the large financial centers, having 
no provisions that would assist the agricultural or smaller com- 
munities. 

The provisions of the Aldrich plan enabling the ''central bank," 
or another name only for the ''central reserve bank," to issue cur- 
rency to be used and counted as reserve for banks would most cer- 
tainly tend strongly to drive into hiding the gold and all better 
currency. 

If the provisions here suggested are not advisable for the needs 
of the large cities, the law can be made to provide that certain pro- 
visions should apply to cities of a cert am population or more, and 
other provisions should apply to cities or communities having a 
smaller population. 

LOANS ON real ESTATE. 

The national-bank laws forbid national banks to loan on real estate 
security. In the large cities of the United States there are plenty of 
stocks and bonds and collateral of that nature to secure loans made 
by the national banks, but in the agricultural sections of the country 
the customers of the banks have not such bonds and securities to 
offer, but the real estate of custom_ers in agricultural communities is 
the best security in that location, and consequently every bank should 
be permitted to take the best security in the community where it does 
business. 

In the agricultural districts banks receive the deposits of farmers 
and agriculturists, and oftentimes, in place of reciprocating by loaning 



116 SUGGESTIONS EESPECTIIs^G PEOPOSED CUKKENCY KEFOKM. 

to these farmers, the bank is unable to take their real estate as se- 
curity, and consequently can not loan them, thus violating one of the 
fundamental principles of the reciprocal relation between a bank and 
its depositors. 

Referring to the comment found on page 28 of Pratt's Digest of 
National Bank Laws, entitled '^Policy of the law/' wherein is ex- 
pressed that real estate loans are too slow for bank loans, I believe 
that to be the fact applied to the large cities, where they can obtain 
an abundance of stocks and bonds and collateral security, but the 
contrary is the fact when applied to the agricultural districts, where 
there are no bonds and stocks to serve as collateral. 

Many times national banks make a loan to a farmer on a poorer 
security in a farming community, when if they were permitted to take 
real estate security at the time of making the loan they could get the 
best of first-class security. 

There is a continuous agitation all over the United States for some 
action to enable the farmers and those in agricultural pursuits to be 
supplied with loans. 

If national banks were permitted to loan upon real estate security, 
the money deposited by the farmers in their respective communities 
could be loaned by the national banks to other farmers in the same 
communities needing the loans. 

It does not follow, as supposed by those not acquainted with the 
facts in agricultural communities, that such loans are necessarily 
long-time, tied-up loans. The writer has had a practical experience 
in this section of the country for 40 years in placing mortgage loans 
upon real estate, and during that time not a single dollar of loss has 
occurred upon any of the loans thus made. 

The national-bank laws as now formed are calculated to attract the 
funds away from the farming communities to the large centers where 
they are otherwise congested with too much concentration of capital. 

TRUST COMPANIES — SAVINGS DEPARTMENTS. 

In the large cities also the business is sufficient so that different 
institutions may be formed, so that they may have National and 
State banks for commercial business, trust companies for trust busi- 
ness, and savings banks for savings business, and this is eminently 
proper. 

In the smaller towns of the West in the agricultural communities, 
in a smaller way it would be a convenience for these communities 
to have the same privileges, yet the volume of business and patronage 
is not sufficient to support a commercial bank, a separate trust com- 
pany, and a separate savings bank. Hence, in enacting any mone- 
tary legislation, and especially in amending the laws governing 
national banks, a national bank organized in towns and communities 
having less than a certain number of inhabitants should be qualified 
and permitted to do all of those several classes of business. In other 
words, it should be permitted to do all the monetary business of the 
community, including the loaning upon real estate security. 

There is every reason why a small estate in a country town should 
be permitted to have a national bank act as executor or administrator, 
just the same as in a large city where the estate runs into hundreds 
of thousands of dollars they can have a trust company to act, but in 



SUGGESTIONS KESPECTING PEOPOSED CURRENCY REFORM. 117 

the small communities where there is no chance for a variety of insti- 
tutions, and hence oftentimes only one financial institution can exist. 
The State hanks of Oregon, and in many of the other States, are 
permitted to do trust-company business, savings-bank business, loan 
upon real estate security, and transact all such financial matters, 
and consequently the national banks in such States are under a great 
disadvantage. 

cashier's check uniform. 

National banks should also be permitted to issue a temporary uni- 
form currency or cashier's check, secured by bills of lading, or other 
good security, the same to be canceled and retired when it is returned 
to the place of issue or other designated centers of redemption, 
similarly as recommended by the American Bankers Association. 

This is practically the same thing, only done in a different manner, 
where the party brings in his bill of lading with a draft drawn against 
it and takes credit for it, and the bank issues a check book to him. 
Only the uniform currency or cashier's check for parties going to dis- 
tant places w^oulcl no doubt be more convenient sometimes than the 
check book. 

ASCERTAINED KNOWLEDGE OF BANKERS. 

In all the discussions for legislation in regard to State and national 
banks pointing to the regulation and guide of banking systems of the 
United States and the several States, I do not see any instance where 
they require some one to pass an examination showing special quali- 
fications fitted to engage in operating or the management of a bank. 

Unless the national-bank laws are to be amended so as to permit 
them to loan on real estate security and transact the business usually 
transacted by trust companies, every national bank should be inti- 
mately connected with a trust company under the same management 
and ownership as the national bank, in order to be able to fully serve 
the customers who can not obtain accommodations in small commu- 
nities from national banks under the present law. 

The writer has studied the conditions and needs of patrons of banks 
in small communities for over 30 years, and I know beyond question 
that the changes herein mentioned are very much needed. Without 
them progress is very much retarded. 

There may be other features that should be formulated for the 
accommodation and relief of other sections of the country, but for 
the relief of the small communities in the West I trust that in any 
future legislation you will use your best endeavors to see that in any 
legislation upon the subject the following provisions are enacted: 

First. That national banks be permitted to loan at least 20 per cent 
of their capital, surplus, and undivided profits and deposits on first 
mortgage real estate security. 

Second. That national banks located in cities of 20,000 or less 
inhabitants be permitted to operate in a separate department the 
powers and duties of trust companies, keeping all such transactions 
separate and distinct from the other departments of the bank. 

Third. That national banks located in cities of 20,000 or less inhabi- 
tants be permitted to operate a savings department, keeping all the 
transactions of that department separate and distinct from the com- 
cial department and the trust-company department. 



118 SUGGESTIONS EBSPECTING PEOPOSED CUREENCY EEPOEM. 

Fourth. That national banks be permitted to isstte a temporary 
uniform currency or cashier's check, secured by bills of lading issued 
for shipments of produce in transit, or on other good, first-class secur- 
ity, said issue to be canceled and retired when it is returned to the 
place of issue or other designated centers of redemption. 

Fifth. That the national-bank laws require that no national bank 
should be permitted to, open or continue until there was at least one 
man in its management who could and had passed a satisfactory 
examination showing his correct knowledge of how to conduct the 
business of a bank, and particularly that he possess direct information 
as to what should be the proper class of loans and securities for a 
national bank to hold. 

The writer is firmly convinced that the foregoing amendments 
should be made, so as to give every national bank the power to trans- 
act the several classes of business named under one charter, at all 
times keeping each department separate. If such amendments were 
in force it would obviate the necessity of the owners of national banks 
making several different organizations to enable them to transact the 
business of their customers. Have suggested that the amendments 
apply to communities of 20,000, because it occurred to the writer that 
possibly some banks in the large centers may feel that the amend- 
ments suggested may not be adapted to their localities. 

If the foregoing amendments were made to the national-bank laws, 
giving national banks authority to transact under one charter trust 
business and savings business, the law should permit a reasonable 
amount of trust funds and savings funds to be loaned on real-estate 
security. 

After considering the foregoing suggestions, will you please give to 
me your views, modifying them in such particulars as your good judg- 
ment may suggest. 

I trust that you may be able to find suggestions here that may be 
of benefit to incorporate into the general plan. 

Thanking you for your consideration, I remain, 
Yours, respectfully, 

M. S. Woodcock, 
President First National Banlc of Corvallis, Oreg. 



Paris, Tex., July 4, 1913. 
Senator Owen, Washington, D. C. 

Dear Sir: I am intensely interested in your work of currency 
reform, so much so that I venture this writing. As a common citizen 
and a close student of finance I feel that I know something of the 
needs of those people for whom governments are or should be insti- 
tuted and conducted. I believe you do. I write to encourage you 
in holding fast to the true theory. I believe you realize that our 
present system, under which money dealers are able to exact, collect, 
and pocket 10 to 50 per cent interest on all small loans made to the 
mass of humanity, is the most vicious power that to-day dominates 
the world. Question. Can this power in the United States be broken ? 
It is not a question of changing the system so as to better serve the 
banking world, it is a question of supplying our common population 
with a medium of exchange when needed at a small rate of 3 to 5 per 



.SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 119 

cent^-a rate just sufficient to cover expense of issuing and proper con- 
trolling of the issue. If you succeed in inaugurating such a system, 
you will deserve not only the plaudits of your own people, but of the 
common people of the world. It would be the most glorious achieve- 
ment in statesmanship since the inception of our Government. An 
immense, idle, profligate, arrogant money-lending class is the curse of 
all curses to the real workers of the world. Can you do anything 
there to help relieve our people from this curse ? We abide the oppor- 
tune time, hoping for relief and looking largely to you for results. If 
you only succeed in giving money dealers a new way of continuing 
their extortions, your efforts will surely be a failure, and we of the 
common walks will feel crestfallen at the thought that we are still to 
walk under the yoke of an idle, haughty, and exacting plutocracy. 
President Wilson's currency message was abstractly true to popular 
needs. He knows our needs. Can he and you and others promulgate 
a working formula ? I believe you can. If you foUow your work for 
money pay it will fail. If you feel that it is sufficient pay to gain 
the blessing of humanity and the soothing consciousness of a harmony 
with godly decrees, then your work will not be in vain. Strength 
and wisdom to your efforts. 

Yours, for legal emancipation of an oppressed working people. 
Very truly, 

P. A. Spain, M. D. 

Washington, D. C, July 5, 1913. 
Hon. Robert L. Owen, 

Chairman Committee on BanMng and Currency, 

United States Senate. 
My Dear Senator: Mr. R. C. Milliken has had a number of con- 
versations with me relative to currency legislation. He is one of the 
best posted men as to monetary science that I know of. He has 
written me a letter, copy of which is herewith inclosed, concerning the 
Owen-Glass bill, and I would thank you very much indeed if you 
would read the same. With best wishes, I remain, 
Yours, truly, 

John F. Shafroth, 

United States Senate. 



[Inclosure to Senator Shafroth's letter of July 5, 1913.] 

Washington, D. C, July 5, 1913. 
Senator John F. Shafroth, 

Senate BanMng and Currency Committee. 
' My Dear Senator: Permit me, please, in the interest of monetary 
science to direct your attention to one fundamental defect in the 
proposed banking and currency bill introduced by Senator Owen and 
Representative Glass in the Senate and House, respectively. Such 
defect lies in the fact that bankers are to sit on the boards of dhectors 
of the Federal reserve banks, because their position on such boards 
gives them an insight into general monetary movements; that is to 
say, those few favored bankers can tell from the shrinkage and accu- 
mulation of the reserves of those reserve banks how money is in 
their sections, and it goes without saying they will use such insight 



120 SUGGESTIONS EESPECTING PEOPOSED CURRENCY REFORM. 

for the gaiii of their private banks. They act for a group. If they 
fail to so use it, they will be traitors to the stockholders of those banks 
they are pledged to serve and they will fail of reelection. 

It is by virtue of this insight into general monetary movements 
acquired by those in control of the central banks that all European 
central banks exclude the bankers from their control. This was the 
fundamental defect of the Aldrich plan. I suspect that the authors 
of this bill sought to remove such objection made to the Aldrich plan 
by excluding bankers from control of the reserve board and providing 
the last-mentioned body could remove objectionable persons (other 
than bankers) selected to the directorates of the reserve banks. 
Those authors obviously labored under the impression that the only 
objectionable feature of a banker's controlled reserve bank was 
dominance in control. That is an objectionable feature, to be sure, 
but dominance in control is certainly no less objectionable than the 
insight imparted by virtue of such control. 

Objectionable as is the special privilege accorded the few bankers 
in immediate control of those reserve banks, yet the injury done the 
vast majority of the bankers who can't enjoy the same privilege is 
nothing compared to the injury it will impose on the general public 
and monetary law, for on many occasions it will prevent the reserve 
banks from rendering effective their discount rates. To illustrate 
this I take the Bank of England's practice. Ordinarily the Bank of 
England's discount rate is ineffective; that is to say, it frequently 
occurs that the bank rate is from 50 per cent to 100 per cent in excess 
of the open-market rate. Suppose the bank rate is 4 per cent when 
the open-market rate is 2 per cent. If the bank can't sell money at 4 
per cent, it would sell less should it advance its rate to 5 per cent. 
In order, therefore, to make its discount rate effective the bank must go 
into the open market and artificially raise the value of money out- 
side. They do it secretly through brokers. In one instance they 
did it direct, but that experience was enough to teach them the folly 
of such action. When the bank is in command of the money market 
,it can, by raising its discount rate, cause an influx or prevent an 
outflow of gold from London. But if the London bankers possessed 
the same insight into general monetary movement enjoyed by the 
Bank of England they would not sell their gold to the bank's brokers 
in ignorance of the purpose for which it was sought — for the public 
good. On the contrary, they would not only withhold their own 
gold from the bank's brokers (and it must be borne in mind that the 
biggest banks are the holders of the greatest supplies of money), but 
they would proceed to buy up all the gold themselves, have all their 
bills rediscounted at the bank while its discount rate was low, for 
they, too, would know the bank must soon raise its discount rate. 
Not only would this scramble for gold by all the important banks of 
London precipitate a panic, but it would make it absolutely impossi- 
ble for the Bank of England to cope with the situation. Thus, 
Samson would destroy himself in his attempt to destroy others. An 
insight or advance information is power and will enrich anyone who 
will utilize it in time. However, some must possess an insight in 
advance of others, as it is impossible to impart it to all simultane- 
ously. But such insight is worthless to the vast majority of the pub- 
lic, but is a most valuable asset in the hands of those selling credit. 
Therefore, it is simply preposterous to think of creating a Government 



SUGGESTIONS RESPECTING PKOPOSED CURRENCY REFORM. 121 

agency by which this insight is to be imparted to those who can and 
will use it for private gain, especially so in view of the fact that such 
use of it would defeat the very object of the proposed legislation, viz, 
keeping an ample supply of gold on hand for the protection of 
public and private credit. 

In support of my contention, I cite you to the experience of not 
merely one, but all the central banks of Europe. Can we afford to 
ignore those precedents — precedents based on the actual experience 
of great public service corporations for generations ? From what 
source do the authors of this bill obtain the principle of special privi- 
lege legislation ? Only from our present national banking system and 
the proposed Aldrich plan. The author of the letter, the high priest 
of special privilege, has been charged by such ably edited journals as 
the New York Journal of Commerce as behig the principal obstacle to 
bank reform in this country. But is it not the mission of our party to 
cure the defects of the present banking system, a system for which 
our party is not responsible and which is reeking with special privilege? 
Therefore no Democrat can afford to point to either of those prece- 
dents as a guide. On the contrary, we must point to precedents of 
proven successes, and they are abundant. 

In this connection I wish to direct attention to the defect of the bill 
permitting the country banks to carry 33J per cent of their reserves 
with the banks other than Federal reserve banks. This provision is 
in the bill introduced in Congress, amending the bill given to the 
press a few days before. It is reported that this provision was in- 
corporated in this bill after a lengthy conference between its authors 
and the distinguished representatives of the banks of the three 
central reserve cities. It is also reported that those representatives of 
special privilege based their argument for this amendment on the 
ground that this was in the interest of the country banks who carried 
balances with them for exchange purposes. It is the old story of the 
beneficiary of the protective tariff advocating a special privilege in 
the interest of the 'laboring man." In the first place we should not 
dignify any sum as '^ reserve" which any bank selling credit for profit 
puts m another bank of the same class. Furthermore, it gives ^n 
insight to the banks holding those so-called reserves, and if this 
special privilege is granted them it will defeat the principal object of 
this measure of unifyiag our bank reserves. 

For the sole purpose of directing attention to the manner ui which 
special privilege operates and not in criticism of those esteemed 
Democratic public officials who framed this bill and agreed to this 
amendment, let me say that I wrote to the Secretary of the Treasury 
about a month ago asking for an audience in which to discuss pro- 
posed monetary legislation. In due course I received a most gracioi s 
reply to the effect he did not have the time to give me a personal 
interview, but suggested that I reduce my views to writing and send 
them to him. Without a knowledge ot his own views on the subject, 
I could not have complied with his suggestion without writing a 
lengthy treatise on banking. While I was perfectly willing to give 
an hour or two of my time to the public good, I did not feel justified 
in devoting so much of my time to the public service as the nature of 
the Secretary's suggestion imposed. While Representative Glass 
was conducting his uivestigation of this subject a few months ago, I 
called on him and requested the privilege of appearing and testifying 



122 SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

before his committee. He refused to grant my request, for the reason, 
as he said, that he was hearing only representatives of special groups. 
I told him that I represented no special interest, unless monetary 
science be so regarded, but that I claimed to represent the American 
people in the interest of sound monetary law. Being an obscure 
citizen, those officials were justified in refusing to listen to me, as I had 
no reputation for sustained thought on this subject. On the other 
hand, the very positions occupied by those great bankers were such 
that those public officials could not deny them an audience which 
I could not obtain, and their audience secured for them the very fruits 
they went after, a special privilege, while I would have shown the 
folly of granting such favor. They did not send obscure monetary 
experts to meet those public officials, not one of whom had had any 
banking experience in central reserve cities, but went in person, 
knowing they could not be refused an audience. 

This letter is critical and written only for Democratic eyes. I have 
no patience with one who spends his time solely in criticizing such 
important measures, but you (who have graciously listened to me 
with patience) know that I have a constructive mind. You know, 
furthermore, that for every constructive thought that I have sug- 
gested I have given a reason supported by at least one authority, and 
in most instances many authorities. When you asked me to reduce 
to writing my criticism of this one feature of the bill, I told you it 
would require considerable of my time, and that I did not feel justified 
in devoting so much of my time to it unless I knew it would be read 
by those Democratic officials chargeable with the responsibility of 
formulating this legislation. Then you suggested that if I would 
furnish you with copies you would send one to the President, Secre- 
tary of the Treasury, and each Democratic member of the Senate Bank- 
ing and Currency Committee, with a personal letter by you asking 
them to read it. With such assurance from you I agreed to perform 
this labor. If my efforts in this particular are appreciated then I 
shall, at a later date when I have the time, prepare a criticism of our 
unsound and unsafe specie-reserve principle as a test of bank solvency. 
This principle has been condemned by the ablest monetary experts in 
the world. It is not only an untrue test of bank solvency, but one of 
the most dangerous tests ever applied anywhere. No country but 
ours ever adopted it and we must discard it if we hope to obtain 
monetary peace and security. 

In support of my criticism of this attempt to give an insight to the 
banks, selling credit for profit, I refer you to my critical analysis of the 
Aldrich plan (and numerous authorities there cited) contained in the 
Congressional Record August 9, 1912, page 11470 of unbound, and 
page 482, part 12, vol. 48, of the bound Record. In further support 
thereof I have prepared a report of the London money market, hereto 
attached. A mere glance at this report will convince any one that 
the bank rate was ineffective on February 23, July 23, and Septem- 
ber 22, because the bank rate on each of those days was 100 per cent 
in excess of the open market rate. 

When money is offered at 2 per cent it is not important to raise 
the railroad rate to attract money. 

If the authorities cited in my critical analysis of the Aldrich plan, 
above referred to, are not sufficient to convince you that this defect of 
imparting an insight to the banks' selling credit for profit is fatal and 
will prevent the system from working, then you can obtain an opinion 



SUGGESTIONS EESPECTING PEOPOSED CURREN^CY REFORM. 123 

from the experienced gentlemen who control the Bank of England, 
because our party is in power and our ambassador could easily secure 
an audience with them for any expert you might send to London. It 
is reported that those gentlemen who had had actual experience in 
control of that great public-service corporation actually laughed at 
the idea of the monetary commission attemptmg to impart this insight 
to the otlier banks. Of course, their private laughs were never pub- 
licly reported, because they were enjoyed at the expense of very high 
public officials of this country who visited them with a baked-up 
monetary plan full of special privilege. Why did the National City 
Bank of New York keep an employee in the Treasury Department? 
To obtain an insight, of course. 

In conclusion let me say that this Congress enjoys the confidence 
of the American people m a higher degree than any Congress since 
the Civil War. The Republican Party is absolutely discredited and 
its leaders are so disconcerted that they do not know what step to 
take. They are simply waiting for us to make a misstep. That is 
the only hope they have. If we give the country a sound credit 
system the people will keep our party in power for half a century. I 
must withhold for the present anv further criticism of the proposed 

bm. 

With the assurance of my high regard for your patriotism, your 
desire to know the truth, your willingness to search for it, your mind 
to grasp it, and your courage to advocate it, I ask to remain, 
Sincerely and faithfully yours, 

R. C. MiLLIKEN, 

Monetary Statist. 

Washington, D. C, July 7, 1913. 
Hon. Robert L. Owen, 

Washington, D. C. 

My Dear Senator: I have examined with some care the proposed 
currency legislation, and with its many good features, it seems to me 
there is one point of more or less importance which should be cov- 
ered, else the consequences may in the end be quite serious. In 
reading the biU I do not find any provision prohibiting one bank 
from being the owner of stock in another, or prohibiting savings banks 
or other State organized banks from being holders of stock in national 
banks. A drastic provision covering this point would be useful in 
preventing ^'pyramiding" and further would be useful in putting an 
end to a condition at present existing, whereby one bank is virtually 
the owner or in control of other banks. 

My attention has been very directly drawn to the necessity of 
such a provision in the law, having had a personal experience with 
a State bank which, being a large owner of stock in a national bank, 
has attempted to influence and control the judgment of the board 
of directors of a national bank, doing this under what amounted to 
at least a tacit threat of the exercise of its control. 

It is possible that the same end could be met by a provision in the 
law against bank stock being voted by anyone except a bona fide 
individual holder, prohibiting voting by corporations. 

I might add that without one or the other of the provisions men- 
tioned it might be possible for one large institution to exercise a 



124 SUGGESTIONS RESPECTING PEOPOSED CURRENCY REFORM. 

control over the election of Federal reserve bank directors entirely 
out of proportion to the control which it is the design of the bill it 
should exercise. 

Very truly, yours, J. H. Kalston, 

Attorney at Law. 

A PLAN TO PREVENT FUTURE FINANCIAL PANICS IN THE UNITED 

STATES. 

Keading, Pa., July 7, 1913. 

The law at present allows every national bank to issue circulation 
to the full amount of its capital, secured by United States bonds or 
other securities. 

Amend the law as follows : Allow any national bank, in time of finan- 
cial disturbance, to issue additional circulation up to 50 per cent of 
its capital, secured also by United States bonds or other securities. 
This additional circulation to pay the same tax that is paid on the 
present circulation for four months from date of issue, after that to 
pay a tax of 5 per cent per annum, and after six months 6 per cent 
per annum, and after eight months 8 per cent per annum on all circu- 
lation above the capital of the bank. This tax will cause the with- 
drawal of the extra currency as quickly as possible, when there is no 
necessity for it to be kept in circulation. 

The bank applying for circulation must do so by resolution of its 
board of directors, which resolution must accompany the securities 
sent to the Treasurer of the United States when a request for this 
additional circulation is asked. 

The Treasurer 'of the United States to have printed and hold in his 
possession at all times blank currency of different denominations up 
to 50 per cent of the capital of every national bank. This plan will 
do away with the necessity of a central bank or national -reserve 
association, and will simply be an extension of the present system, 
and will be the means of providing a great amount of money without 
delay. Some of the unsigned currency could be kept in the different 
subtreasuries of the United States so that it could be had quickly if 
found necessary. 

Submitted by 

Edwin Boone, 
Vice President and Cashier 
National Union Banlc of Reading, Pa. 



University of Washington, 

Seattle, Wasli., July 7, 1913. 
Hon. Robert L. Owen, 

Chairman Committee on BanTcing and Currency, 

United States Senate, Washington, D. C 

Dear Sir: I have long believed that it is possible to prevent the 
fluctuations in general })rices, which have been so conspicuous a 
feature of the economic history of the last 100 years. I do not be- 
lieve, however, that any Government acting alone can maintain 
stable prices as long as our monetary system is such as to make 



SUGGESTIONS EESPECTING PROPOSED CURRENCY REFORM. 125 

conformity to the international price level necessary. We can not 
retain the gold standard and at the same time prevent such fluctua- 
tions in general prices as may be due to world-wide changes in the 
value of gold. 

The problem of stabilizing the price level, with gold as the basis of 
our monetary system, is one which can not be completely solved 
without the cooperation of the leading commercial nations. If the 
annual production of gold should continue to increase as it has 
during the last 25 years, it is probable that a rise in the general 
price level could not be prevented without limiting the coinage of 
gold. To do this and at the same time preserve the international 
monetary standard would require concerted action by the leading 
commercial nations. 

But while it is not possible for any one country to maintain a stable 

Erice level and also preserve the par of exchange, it would be possi- 
le to prevent all changes in the level of general prices except such 
as may be due to the fact that we have an international standard of 
value. This degree of stability could be secured, it seems to me, 
through control by the Government of the volume of bank notes or 
other paper money in circulation. 

Respectfully, J. Allen Smith. 



Springfield, Mass., July 8, 1913. 
Hon. Robert L. Owen, 

WasJiington, D. C. 

My Dear Senator Owen: Returning from six weeks abroad, it is 

encouraging to And a disposition to effect monetar}^ reform at the 

S resent session. Inclosed is a copy of an interview with me in the 
Tew York Evening Post for July 7, 1913. 

May I ask you to have the clerk of your committee send me a copy 
of each of the fiscal bills you have before you for consideration ? Also 
any recently published reports of hearings or other data. 

I have the honor to have been invited to address the Georgia Legis- 
lature on cooperative farm finance, which of course is somew^hat dis- 
tinct from the reform of commercial banking and credits that your 
committee is working on particularly. But you may be interested 
to see my '^Standard bill for farm finance under State law," inclosed 
herewith. 

Yours, very truly, 

Herbert Myrick, 
President and Editor, Orange Judd Co., 

The Pliel^s Publishing Co. 



A Standard Bill for Cooperative Farm Finance Under State 

Laws. 

(By Herbert Myrick, author of Cooperative Finance — An American monetary method for the American 
people; and of other works. President Cooperative Finance League. President and editor-in-chief of 
the Orange Judd Farm Weeklies, Farm and Home, etc.] 

Part 1. Cooperative people's banks for personal credits. 
Part 2. Cooperative land banks for realty credits. 



126 SUGGESTIONS EESPECTING PEOPOSED CUEEENCY EEFOEM. 

Draft of a bill authorizing the incorporation of such cooperative 
banking institutions, tentatively suggested for consideration by the 
legislature of each State. 

Note. — Gov. O'Neal, of Alabama, in his address to the governors' conference at 
Richmond, Va., in December, 1912, said: "A very clear, interesting, and instructive 
discussion of this subject is found in the new book Cooperative Finance, by Herbert 
Myrick, " from which he quotes freely. Gov. O'Neal is chairman of the governors' 
committee on cooperative finance, the other members of which are Harmon of Ohio, 
Plaisted of Maine, Carey of Wyoming, Foss of Massachusetts, Mann of Virginia, Mc- 
Govern of Wisconsin, and Johnson of California. Gov. O'Neal writes: "I have 
recommended that they each read Myrick's Cooperative Finance, which, in my judg- 
ment, is the clearest exposition of the whole subject that I have had the pleasure of 
reading. " 

Kemarks on Part 1 — Cooperative People's Banks for Per- 
sonal Credits. 

This draft is based upon the Massachusetts statute of 1909, under 
which several of these institutions are operating successfully. The 
changes therefrom are such as have proven to be needed, by the 
practical operations of the Myrick credit union, and by experience in 
this and foreign countries. 

If your State law already permits the words '^cooperative bank '' to 
be used by a building and loan association or other institution, the 
corporation for personal credits herein authorized might be called 
''people's credit bank." 

Keep the law as simple as possible. Leave each cooperative bank 
free to adapt itself to the needs of its members in country or town. 

Of course, each legislature will adapt the phraseology, references, 
amounts, rates, and other details of this draft to the laws, customs, and 
appropriate offices of its State, and make such alterations as its wis- 
dom suggests. The draft for part 1, while peculiarly adapted to the 
purposes of these little cooperative thrift banks for savings and loans, 
''really follows very closely the administrative organization" of a 
mutual savings bank under the laws of Massachusetts — probably 
the most perfect savings bank system the world has yet seen. 

The Cooperative Finance League plans to supply model, by-laws, 
rules, etc., upon request to any State board empowered under section 
3, to organize either cooperative banks or a land bank. 

Eemarks on Part 2 — Cooperative Land Banks for Realty 

Credits. 

This part of the bill is carefully drawn to carry out the principles 
laid down for such institutions in the author's work, "Coopera- 
tive Finance. " These provisos may be readily adapted to the laws, 
practices and conditions prevailing in each State. The book referred 
to may be consulted for full discussion upon the details of both parts 
of this bill, as well as upon the whole subject of banking and currency 
reform. (Orange Judd Co., publishers. New York; complete work 
$2.50, abridged edition $1.) 

Other suggestions for State legislation in this connection appear 
below. 



3 



SUGGESTIONS EESPECTING PROPOSED CUEEEI^CY EEFOEM. 127 
NEITHER TYPE OF BANK IS FOR PROFIT. 

The whole bill is a patriotic offering toward the solution of a prob- 
lem, the right working out of which will immeasurably benefit the 
people of each State that puts the plan into successful operation. 

Unlike commercial banking or capitalistic corporations, the object 
of the organizers of cooperative banks and land banks is service, not 

These not-for-profit institutions will prosper in the degree that their 
members adhere to the cooperative spirit — fine idealism, help-each- 
other, solidarity, get-together, and work-together, 'Vhat can I do 
for the co-op. rather than what can it do for me"; and employ busi- 
ness principles, effective organization, strict economy and self-help 
instead of relying upon State aid. What people do for themselves 
is manyfold more beneficial than anything that can be done for them 
by pap, privilege, or charity. 

All other forms of banking, finance, and business have much to 
gain and nothing to lose from the cooperatively organized and care- 
fully managed associations this bill proposes. But this proposition 
allows no margin for promoters, exploiters, or bonuses. It calls for 
patriotic endeavor, intelligent advocacy, and self-sacrificing effort in 
startiag these banks — after the needed laws are secured. Once the 
people create them and enjoy their benefits, these institutions will 
flourish and increase in numbers and usefulness. 

Herbert Myrice:. 
315 Fourth Avenue, New York, January, 1913. 

What Each State May Do to Promote Fiscal Reforms by State 

Legislation. 

Many economic and social ills are due to the inefficiency of the pres- 
ent fiscal system. Its fullest reform calls for adequate action by the 
United States Congress. But we believe that here in our own State 
the financial welfare of all the people will be aided if the legislature 
enacts laws to accomplish the following purposes: 

1. COOPERATIVE STATE BANKS FOR PERSONAL CREDITS. 

(a) Authorize the iQCorporation under State law of little coopera- 
tive people's banks, for savings, loans, safe deposit, and trust — insti- 
tutions through which the humblest may be enabled to finance them- 
selves thi'ough personal credits, according to the Myrick bill herewith. 

2. COOPERATIVE STATE LAND BANKS. 

(Jb) Authorize the incorporation under State law of cooperative 
land banks to issue bonds secured by mortgage on farms and homes, 
so as to make it easy for tenants and others to own their own farms 
and homes through such use of realty credits at low cost, according 
to the Myrick bill herewith. 

(c) Permit the cooperative people's banks, also other State banks, 
as well as the State itself and individuals, to deposit in the land 
reserve of such land mortgage banks. 

2736—13 9 



128 SUGGESTIONS KESPECTING PEOPOSED CUKKEI^CY KEFOKM. 

{d) Guard against the exploitation of this system by promoters 
for profit. Insure that it shall be run for the common good of in- 
vestors in such land bonds and the owners of the mortgaged prop- 
erty. Guard against manipulation by mortgage loan companies. 

(e) Encourage the building and loan association in its noble efforts 
to aid wage earners to own their own homes, while providing rural 
and land banks to help farming. 

3. REGULATE ALL BANKING. 

(f) Require any individual, association, or corporation that does a 
banking business to incorporate under the banking laws of the State, 
and be subject to the same official supervision as all legitimate incor- 
porated banking institutions. 

{g) Prohibit the use of the word ^'banker/' or ^^bank/' by any 
person or concern that is not incorporated for banking purposes under 
the laws of this State or of the United States. 

(Ji) Properly regulate the issue and sale of all investment securities. 

ii) Require savings deposits to be safely invested within the State, 
and not permitted to flow into commercial risks or stock exchange 
speculation. Provide for mutual savings banks run in the sole interest 
of depositors. 

ij) Abolish all so-called '^private banks/' for, as has been so well 
said, '^banking is a public trust, not a private snap." 

4. LAND TITLES GUARANTY. 

(k) Codify, simplify, and improve our land laws. Give us a method- 
of title insurance and transfer that shall be perfect, cheap, simple — 
the Torrens system or something like it. Thus make real estate titles 
incontestable and safe without great expense to owners, borrowers, or 
lenders. 

5. JUSTICE IN TAXATION. 

(Z) Exempt from taxation mortgages bearing not to exceed 5 per 
cent interest, instead of making the land bear the double burden of a 
tax on itself and also upon the mortgage. 

(m) Tax the property within this State of all corporations. Exempt 
the shares of corporations incorporated in this State, but tax the 
shares of other corporations. Thus encourage capital to invest 
within this State, while simplifying the State's supervision of corpo- 
rate interests. 

6. INSURANCE. 

{n) Authorize our savings banks or other institutions doing a 
noncommercial banking business, to conduct life insurance, annuities, 
etc., under the Massachusetts State system, or by the Wisconsin 
State method. Thus enable the people to provide at small cost 
against the proverbial ''rainy day. " 

Part 1. Cooperative Banks for Personal Credits, 
term defined. 

Section 1. In this act the words "cooperative bank" shall mean a cooperative 
association formed for the purpose of promoting thrift among its members, by affording 
means for saving money in small or large amounts, by securing deposits or loans of 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 129 

funds upon the associated liability of its members, by furnishing advances or loans for 
productive purposes, by making loans of a remedial character, by promoting in a coop- 
erative spirit the ideals of help for self-help, and by transacting a general banking busi- 
ness in the interest of its members primarily through personal deposits and character 
credits, in contradistinction to realty credits secured by long-time mortgages upon real 
estate, rather than operating for profit to capital in the manner common to commercial 
banking. The cooperative bank is not for profit beyond the modest minimum herein 
stated. 

BUSINESS THAT MAY BE DONE BY COOPERATIVE BANKS. 

Sec. 2. A cooperative bank may receive the savings of its members in payment for 
shares or o.i deposit: may lend to its members at reasonable rates the funds so accumu- 
lated, may receive deposits from nonmembers and transact a general banking business, 
and may undertake such other activities relating to the purpose of the association, as its 
by-laws may authorize. 

INCORPORATION OF COOPERATIVE BANKS. 

Sec 3. Seven or more citizens of this commonwealth who have associated them- 
selves by an agreement in writing for the purpose of forming a cooperative bank may, 
with the consent of the board of bank incorporation, become a corporation upon com- 
plying with all the provisions hereof. The State board of bank incorporation is hereby 
authorized to grant such consent when it is satisfied that the proposed field of operation 
is favorable to the success of such cooperative bank, and that the standing of the pro- 
posed members is such as to give assurance that its affairs will be administered in 
accordance with the spirit of this act. Said board shall furnish, free of cost, all the 
forms, blanks, information and instruction required to enable the people interested to 
organize the banks herein provided for, and may employ organizers and instructors for 
promoting their organization and for teaching the officers thereof efficiency in the man- 
agement of said cooperative banks, without expense to the same; and for these pur- 
poses the sum of $25,000 annually is hereby appropriated to said board. 

certain ASSOCIATIONS PROHIBITED FROM USING THE WORDS "COOPERATIVE" AND 

"bank." 

Sec 4. No person, partnership, association or corporation, except corporations 
formed under the provisions of this act, shall hereafter transact business under any 
name or title which contains the two words "cooperative" and "bank." If located 
in rural community, the word "rural" shall be used in, or immediately after or under 
the name of the cooperative bank ; if in a city or town of three thousand or more popu- 
lation, the word "urban" shall be so used. The provisions of (here refer by number 
to that section and chapter of the statute which prescribes penalties for violating the 
State banking law), and as prescribed therein, proceedings shall be brought against any 
person, partnership, association, or corporation which violates the provisions of this 
section. 

CERTAIN PROVISIONS TO APPLY TO COOPERATIVE BANKS. 

Sec 5. The provisions of (here refer by number and chapter to the necessary parts of 
the State banking law), shall apply to such corporation and its directors, committees, 
and officers, and they shall be subject to the supervision of the bank commissioner in 
the manner and to the extent set forth in said sections. 

BY-LAWS. 

Sec 6. The by-laws shall prescribe — 

(a) The name of the corporation. 

(b) The purposes for which it is formed. 

(c) The conditions of residence or occupation which qualify persons for membership. 

(d) The system for encouraging members to increase their holdings of shares. 

(e) The conditions on which shares may be paid in, transferred, and withdrawn. 

(f) The conditions on which deposits may be received and withdrawn. 

(g) The method of receipting for money paid on account of shares or deposited, 
(h) The number of directors and number of members of the credit committee. 
(i) The duties of the several officers. 

(j) The fines, if any, which shall be charged for failure to meet obligations to the 
corporation punctually. 

(k) The date of the annual meeting of members. 

(1) The manner in which members shall be notified of meetings. 

(m) The number of members which shall constitute a quorum at meetings. 

(n) Such other regulations as may seem necessary. 



130 SUGGESTIONS EESPECTIKG PKOPOSED CUKKENCY EEFOKM. 

DEPOSITS NOT TO BE RECEIVED UNTIL BY-LAWS HAVE BEEN APPROVED. 

Sec. 7. No such corporation shall receive deposits or payments on account of shares, 
or make any loans, until its by-laws have been approved in writing by the bank com- 
missioner, nor shall any amendments to its by-laws become operative until they have 
so been approved. 

MEETINGS. 

Sec 8. The fiscal year of every such corporation shall end at the close of business on 
the thirty-first day of December. The annual meeting of the corporation shall be held 
at such time and place as the by-laws prescribe. Special meetings may be held by 
order of the directors or the supervisory committee, and the clerk shall give notice of 
special meetings upon request in writing of ten members. Notice of all meetings of 
the corporation shall be given in the manner prescribed by the by-laws. No person 
shall be entitled to vote who has not been a member for more than three months, but 
this restriction shall not apply during the first twelve months of the existence of the 
corporation, nor shall any member vote by proxy, or have more than one vote. At 
the annual meeting the members may, upon recommendation of the board of directors, 
declare dividends and fix the maximum amount of the entrance fee; provided, that 
the maximum dividend upon shares in any year shall not exceed one per centum over 
and above the average rate of interest received from borrowers during that year. At 
any meeting, the members may decide upon any question of interest to the corporation; 
and upon appeal of two members, may reverse decisions of the board of directors or any 
of the committees or decisions reached by the board of directors and committees in joint 
session; and by a three-fourths vote of those present, provided the notice of the meeting 
shall have specified the questions to be considered, may amend the by-laws. 

DIRECTORS AND COMMITTEES, ELECTION. 

Sec. 9. At the annual meeting the members shall elect from their numbers a board 
of directors of not less than five members, a credit committee of not less than three 
members, a supervisory committee of three members, and a special committee of two 
members. No person shall be a member of more than one committee, and no director 
shall be eligible for either of the three committees named, unless the total membership 
is so few as to require it. All directors and committee members, as well as all officers 
whom they may elect, shall be sworn and shall hold their several offices until others are 
elected and qualified in their stead; and a record of every such qualification shall be 
filed and preserved with the records of the corporation. 

OFFICERS OF CORPORATION, ELECTION. 

Sec 10. At their first meeting the board of directors shall elect from their number a 
president, a vice president, a clerk and a treasurer who shall be the executive officers 
of the corporation. The board of directors shall have the general management of the 
affairs, funds and records of the corporation, and shall meet as often as may be neces- 
sary. It shall be their special duty — 

(a) To act upon all applications for membership. 

(b) To act upon the expulsion of members. 

(c) To fix the amount of surety bond which shall be required of each officer having 
custody of the funds. 

(d) To determine the rate of interest which shall be allowed on deposits. 

(e) To determine the rate of interest which shall be charged on loans. 

(f ) To fill vacancies in the board of directors or in the credit committee of the corpo- 
ration until the election and qualification of officers to fill said vacancies. 

(g) To make recommendations to meetings of the members relative to the maximum 
amount of entrance fee ; the maximum amount which may be lent to any one member; 
the dividend to be declared ; amendments to the by-laws; and any other matters which 
in their opinion the members should decide. 

DUTIES OF CREDIT COMMITTEE. 

Sec 11. The credit committee shall approve every loan or advance made by the 
corporation, except as set forth in section thirteen. Every application for a loan shall 
be made in writing and shall state the purpose for which the loan is desired and the 
securit}^ offered. No loan shall be made unless the credit committee is satisfied that 
it promises to benefit the borrower, nor unless it has received the unanimous approval 
of those members of said committee who were present when it was considered, nor if 



SUGGESTIONS RESPECTING PROPOSED CUEEENCY EEFOEM. 131 

any member of said committee shall disapprove thereof; but the applicant for a loan 
may appeal from the decision of the credit committee to the board of directors. This 
section is modified by section 13. 

DUTIES OF SUPERVISORY COMMITTEE. 

Sec. 12. The supervisory committee shall inspect the securities, cash, and accounts 
of the corporation and supervise the acts of its board of directors, credit committee and 
officers. At any time the supervisory committee, by a unanimous vote, may suspend 
the credit committee, or special committee, or any officer elected by the board of 
directors, and by a majority vote may call a meeting of the shareholders to consider 
any violation of this act or of the by-laws, or any practice of the corporation which, in 
the opinion of said committee, is unsafe or unauthorized. Within seven days after 
the suspension of the credit or special committee the supervisory committee shall cause 
notice to be given of a special meeting of the members to take such action relative to 
such suspension as may seem necessary. The supervisory committee shall fill vacan- 
cies in their own number until the next annual meeting. 

DUTIES OP SPECIAL COMMITTEE. 

Sec. 13. The special committee shall act upon every loan or advance made by the 
corporation to any member of the board of directors, or of the credit committee, or of the 
supervisory committee. Every application for a loan to such individuals shall be 
made in writing, and shall state the purpose for which the loan is desired and the 
security offered. No such loan shall be made unless the special committee is satisfied 
that it promises to benefit the borrower, nor unless it has received the approval in 
writing of both members of the special committee. 

CAPITAL STOCK. 

Sec 14. The capital of the corporation shall be unlimited in amount. Shares of 
capital stock may be subscribed for and paid for in cash in such manner as the by-laws 
shall prescribe, but no certificate for shares shall be issued until the same have been 
fully paid up. 

The par value of each share in the capital stock of a cooperative bank shall be |5, to 
be paid for in cash. Each shareholder shall be liable for the debts of the corporation 
to the amount of shares subscribed for by him, whether wholly or partly paid up. As 
an initial payment for the privilege of membership, each member shall pay an entrance 
fee of at least $1, besides subscribing for not less than one share of the capital stock. 
Only a natural person may be a shareholder, and no one person may hold more than 
two hundred shares, which may be evidenced by passbook entry or by certificates as 
the by-law may determine. 

ISSUE OF shares, ETC. 

Sec 15. Shares may be issued and deposits received in the name of a minor, and 
such shares and deposits may, in the discretion of the directors, be withdrawn by such 
minor or by his parent or guardian, and in either case payments made on such with- 
drawals shall be valid. If shares are held or deposits made in trust the name and resi- 
dence of the beneficiary shall be disclosed and the account shall be kept in the name of 
such holder as trustee for such person. If no other notice of the existence and terms of 
such trust has been given in writing to the corporation, such shares or deposits may, 
upon the death of the trustee, be withdrawn by the person for whom the amount of such 
shares was paid in or for whom such deposit was made, or by his legal representative. 

DISPOSITION OF FUNDS. 

Sec 16. The capital, deposits, and surplus funds of the corporation shall be either 
lent to the members for such purposes and upon such security and terms as the credit 
or special committee shall approve, or may be partly invested in the land reserve cer- 
tificates or land bonds of the land-mortgage-banking corporation hereinafter described, 
and to the extent hereinafter set forth; or deposited to the credit of this corporation in 
savings banks, or trust companies, or commercial banks, incorporated under the laws 
of this Commonwealth, or in national banks located therein. In making petty loans 
of a remedial character, more than the legal rate of interest may be charged upon the 
unanimous approval in writing by the directors and committees; and loans to non- 
members on call, or other liquid investments, may be made in like manner out of any 
funds in excess of fifteen per cent reserve, but the members shall always have first call 
upon the funds of the corporation. 



132 SUGGESTIONS EESPECTII^rG PKOPOSED CURRENCY REFORM. 

PAYMENT OF LOANS. 

Sec. 17. Aborrowermayrepay the whole or any part of liis loan at any time at which 
the office of the corporation is open for the transaction of business. For failure to pay 
the interest or any installment required by the terms of the loan, the borrower may be 
fined if the by-laws so prescribe. 

CERTAIN OFFICERS NOT TO RECEIVE COMPENSATION. 

Sec. 18. No member of the board of directors or of the credit or supervisory or special 
committee shall receive any compensation for his services as a member of said board 
or committees, nor shall any member of the credit or supervisory committee, either 
directly or indirectly, become surety for any loan or advance made by the corporation 
after its second annual meeting. But the officers elected by the board of directors may 
receive such compensation as said board shall authorize. 

EXPULSION OP members. 

Sec 19. The board of directors may expel from the corporation any member who has 
not carried out his engagements with the corporation, or has been convicted of a crim- 
inal offense, or neglects or refuses to comply with the provisions of this act or of the 
by-laws, or whose private life is a source of scandal, or who habitually neglects to pay 
his debts, or shall become insolvent or bankrupt, or shall have deceived the corpora- 
tion with regard to his property, resources, credit or use of borrowed money; but no 
member shall so be expelled until he has been informed in writing of the charges 
against him, and an opportunity has been given to him, after reasonable notice, to be 
heard thereon. 

DISPOSITION OF FUNDS DEPOSITED BY EXPELLED MEMBERS. 

Sec. 20. The amounts paid in on shares or deposited by members who have with- 
drawn or have been expelled shall be paid to them, less all accrued interest, other gains^ 
or profits, but in the order of withdrawal or expulsion and only as funds therefor be- 
come available and after deducting any amounts due by said members to the corpora- 
tion; but such expulsion shall not operate to relieve a member from any remaining 
liability to the corporation. 

TO BE AUDITED. 

Sec. 21. Immediately before a meeting of the directors called to recommend the 
declaration of a dividend, the supervisory committee shall make a thorough audit of 
the receipts, disbursements, income, assets, and liabilities of the corporation for the 
fiscal year, and shall make a full report thereon to the directors. Said report shall be 
read at the annual meeting and shall be filed and preserved with the records of the 
corporation. 

DIVIDENDS. 

Sec. 22. At the annual meeting a dividend may be declared from income which has 
been actually collected during the fiscal year next preceding, or during the months 
which have elapsed since the corporation began business, and which remains after the 
deduction of all expenses, losses, interest on deposits, and the amount required to be 
set apart as a guaranty fund. Such dividend shall be paid on all fully paid shares 
outstanding at the close of the fiscal year, but shares which become fully paid during 
the year shall be entitled only to a proportional part of said dividend, calculated from 
the first day of the month following such payment in full. Dividends due to a member 
shall be credited to the account of partly paid shares for which he has subscribed until 
same are paid up and then may be paid in cash. 

GUARANTY FUND. 

Sec 23. Immediately before the payment of each dividend, there shall be set apart 
as a guaranty fund twenty per centum of the net income which has accumulated during 
the fiscal year. Said fund and the investments thereof shall belong to the corporation 
and shall be held to meet contingencies or losses in its business. All entrance fees 
shall be added at once to the guaranty fund. But upon recommendation of the board 
of directors the members at an annual meeting may increase, and whenever said fund 
equals or exceeds the amount of capital stock actually paid in, may decrease, the pro- 
portion of profits which is required by this section to be set apart as a guaranty fund. 



SUGGESTIONS KESPECTING PKOPOSED CUKRENCY EEFOEM. 133 

In case the cooperative bank joins the land bank hereinafter referred to, the guaranty 
fund shall accrue until it equals siaid cooperative bank's deposit in the bond reserve, 
and thereafter as set forth in the preceding sentences of this section. 

TAXATION OF COOPERATIVE BANKS. 

Sec. 24. The shares and deposits of any cooperative bank under this act shall not be 
taxable, but all the net earnings of any cooperative bank over and above an avereage 
annual return of four per centum upon its capital, surplus, guaranty fund, undivided 
profits, and deposits, shall be subject to taxation at the same rate that is imposed by law 
upon the income or assets of other banking institutions in this State, such taxes to be 
collected, accounted for, and the proceeds thereof employed as the law requires with 
respect to other banking institutions. 

DISSOLUTION OP CORPORATION. 

Sec. 25. At any meeting specially called to consider the subject, the members, 
upon the unanimous recommendation of the board of directors, may vote to dissolve 
the corporation, provided at least two-thirds of the members are present at such meet- 
ing, and provided not more than ten members, either in person or by written notice, 
object thereto. A committee of three shall thereupon be elected to liquidate the 
assets of the corporation, and each share of the capital stock, according to the amount 
paid in thereon, shall be entitled to its proportion of the proceeds after all deposits and 
debts of the corporation have been paid. 

ANNUAL REPORT. 

Sec. 26. Within twenty days after the last business day of December in each year, 
every such corporation shall make to the bank commissioner a report in such form 
as he may prescribe, signed by the president, treasurer, and a majority of the super- 
visory committee, who shall certify and make oath that the report is correct according 
to their best knowledge and belief. Any such corporation which neglects to make the 
said report within the time herein prescribed shall forfeit to the commonwealth $5 
for each day during which such neglect continues. 

Part 2. Cooperative Land Banks for Realty Credits. 

PURPOSES OF land BANK. 

Sec. 27. In this act the words "land bank" shall mean a cooperative association 
formed for the purpose of making loans upon real estate situate within this common- 
wealth, preferably upon farms owned, occupied, and worked by their owners, or upon 
homes occupied by their owners, in contradistinction to advances upon personal 
property. The instruments representing such loans, and the first mortgages securing 
the same, may be employed by the land bank as security for its issue of land bonds, 
proceeds from the sale of which may furnish the bank with funds to loan at lowest 
possible rates of interest, and with privilege of repayment by installments over long 
periods or otherwise. The purpose of the land bank is to operate so scientifically, con- 
servatively, and economically that its land reserve certificates and land bonds shall 
possess every attribute of safety to depositors and investors, while enabling borrowers 
to secure funds at reasonable rates. By thus transacting a mortgage banking and 
mortgage-security business on a cooperative basis, in the interest of borrowers and lend- 
ers or investors in its securities, the land bank is not operated for profit, but aims to 
assist people to acquire farms or homes of their own. 

BUSINESS THAT MAY BE DONE BY THE LAND BANK. 

Sec. 28. A land bank may receive the savings of its members in payment for land 
reserve certificates, or for land bonds, or on deposit or loan; may lend its funds at 
reasonable rates upon notes secured by first mortgage upon real estate situate within 
this State at not to exceed sixty-five per centum of its value as adjudged in writing by 
disinterested appraisers; may require borrowers to pay installments upon the principal 
of such loans; may use such notes and mortgages as collateral for an issue of land bonds 
bearing reasonable rates of interest, which it may sell in domestic or foreign markets, 
and may also buy in the same, but only forredemption and cancellation, and may under- 
take such other activities and do such other things relating to the purposes of the land 
bank as its bv-laws may authorize, all subject to State supervision as hereinafter set 
forth. 



134 SUGGESTIONS EESPECTING PKOPOSED CURBENCY EEFOEM. 

INCORPORATION OP THE LAND BANK. 

Sec. 29. Fifteen or more citizens of this commonwealth, who have associated them- 
selves by an agreement in writing for the purpose of forming a land bank, may, with 
the consent of the board of banking incorporation, become a corporation foi land bank- 
ing purposes upon complying with all the provisions hereof. The State board of bank- 
ing incorporation is hereby authorized to grant such consent when it is satisfied that 
the proposed field of operation is favorable to the success of such land bank and that 
the standing of the proposed members is such as to give assurance that its affairs will 
be administered in accordance with the spirit of this act. Of the not less than fifteen 
incorporations proposed, not less than eight shall be representatives of cooperative 
banks which have complied herewith, one representative from each of such banks; 
one representative from this State for each $100,000 the State invests in the land 
bank's reserve certificates, said representative to be appointed by the governor and 
approved by the council, and the other incorporators shall be citizens of this common- 
wealth, each of whom has invested not less than |5,000 in said land reserve certifi- 
cates, or who represents an institution domiciled in this State which has invested not 
less than $5,000 in said land reserve certificates. When one such land bank shall 
have been incorporated, it shall proceed forthwith to prosecute its business diligently; 
another shall not be chartered under this act until the first one is at least one year 
of age, and then only if, upon public hearing to all parties in interest, the State board 
of linnk incorporation is convinced that public welfare and the purposes of this act 
will thereby be better conserved. 

OTHER CORPORATIONS PROHIBITED FROM USING THE WORDS "LAND" AND "BANK," 

Sec. 30. No person, partnership, association, or corporation, except corporations 
formed under the provisions of part two of this act, shall hereafter transact business 
under name of "land" and "bank." 

CERTAIN PROVISIONS TO APPLY TO LAND BANKS. 

Sec. 31. The provisions of law (here refer by number and chapter to the necessary- 
parts of the State banking laws) shall apply to such corporations and its directors, 
committees, and officers, and they shall be subject to the supervision of the State bank- 
ing commissioners in the manner and to the extent set forth in said section. 

BY-LAWS. 

Sec. 32. The by-laws shall prescribe — 

(a) The name of the corporation. 

(b) The purposes for which it is formed. 

(c) The conditions of residence, occupation, or otherwise which qualify persons or 
corporations for membership . 

(d) The conditions upon which deposits may be received into the land reserve fund, 
the certificates issued for the same, and the redemption and cancellation thereof; also 
the payment of interest thereon. 

(e) The conditions upon which loans may be made on notes of realty owners secured 
by first mortgage upon their real estate. 

(f) The conditions upon which bonds may be issued upon security of such notes and 
mortgages, their sale, redemption, and cancellation. 

(g) The number of directors and number of committees, and their membership. 
(h) The duties of the several ofiScers. 

(i) The fines, if any, to be imposed for failure to meet obligations to the corporation 
punctually. 

(j) The date of annual meeting of members. 

(k) The manner in which members shall be notified of meetings. 

(1) The number of members which shall constitute a quorum at meetings. 

(m) Such other regulations as are necessary. 

APPROVAL OF BY-LAWS AND REGULATIONS. 

Sec. 33. (a) No such corporation shall receive deposits or make loans until its by- 
laws haA'e been approved m writing by the State bank commissioners, nor shall any 
amendments to its by-laws become operative until they have been so approved, 

(b) No land reserve certificate or land bond shall be issued by the bank, and no loans 
shall be made by it until, in addition to approval of the by-laws, the land bank shall 



I 



SUGGESTIONS EESPECTING PKOPOSED CURKENCY REFOEM. 135 

have received from the State board of banking commissioners written approval of the 
bank's regulations governing all the details of loans, land reserve certificates, and land 
bonds. No trustee, committee member, or officer of the bank may transgress any of its 
by-laws or regulations thus approved, or any order of the State board of banking com- 
missioners pertaining to the conduct of said land bank, or violate any of the provisions 
of this act, under penalty of a fine not exceeding $10,000, or not exceeding five years 
imprisonment, or both. 

MEETINGS. 

Sec. 34. The fiscal year of every such corporation shall end with the close of business 
on the thirty-first day of December. The annual meeting of the corporation shall 
be held at such time and place as the by-laws prescribe. Special meetings may be 
held by order of the trustees or of the auditing committee, and the clerk shall give 
notice of special meetings upon request in writing of not less than twenty-five members. 
The notice of all meetings of the corporation shall be given in the manner prescribed 
by the by-laws. Each member shall be entitled to one vote. At the annual meeting, 
the members may, upon recommendation of the board of trustees, declare dividends; 
and at any meeting the members may decide upon any question of interest to the cor- 
poration, and upon appeal of five members may reverse decisions of the trustees or 
any of the committees, and by a three-fourths vote of those present, pro\iding the 
notice of the meeting shall have specified the question to be considered, may amend 
the by-laws. 

MEMBERSHIP. 

Sec. 35. (a) Until the permanent organization is completed, each incorporator shall 
be entitled to one vote at the meetings thereof. 

(b) At any subsequent meeting any person having a deposit in the land reserve of 
not less than $5,000, as evidenced by the land bank's reserve certificate, may have one 
vote therein; any cooperative bank which has deposited in the land reserve an amount 
equal to not less than twenty-five per centum of its paid up capital, may have one vote 
therein, its voting member to be its president or other person duly authorized by its 
board of directors ; any other bank whose deposit is no t less than the average land reserve 
deposit of the cooperative banks shall have one vote to be cast in like manner; for 
each $100,000 that this commonwealth may have deposited in the land reserve it shall 
be entitled to one vote, to be cast by the State's representatiA'e or representatives ap- 
pointed by the governor and approved b> the council; any corporation, partnership, 
or association having a deposit in the land reserve of not less than $10,000 may have 
one \ote therein, to be cast by its official representative. 

(c) Borrowers from the land bank shall have representative membership therein on 
this basis: The bank shall call an annual meeting of the borrowers within convenient 
areas prescribed by it, at which each borrower shall have one vote, and this meeting 
shall choose one of their number as their member of the land bank, who likewise shall 
haA^e one vote therein; and the trustees shall prescribe regulations for such meetings 
of borrowers. It shall not be lawful to vote by proxy, nor to have "dummy" holders 
of land reserve certificates. 

TRUSTEES AND COMMITTEES, ELECTIONS. 

Sec. 36. Until the first annual meeting the incorporators shall, and thereinafter the 
members shall, elect from their number a board of not less than seven nor more than 
fifteen trustees, a committee on loans of not less than three nor more than seven mem- 
bers, and an auditing committee of three members. No person shall be a member of 
more than one committee. No director shall be eligible for membership to the audit- 
ing committee, nor shall any trustee-elect or officer of the bank have the right to vote 
for any member of the auditing committee. All trustees and committee members, 
as well as all officers whom they may elect, shall be sworn and shall hold their several 
offices until others are elected and qualified in their stead : and a record of every such 
qualification shall be filed and preserved with the records of the corporation. For 
each $100,000 which this State shall have deposited in the land reserve fund of the 
land bank, it shall have one trustee, who shall be the representative provided for in 
section 29. 

officers of corporations, elections. 

Sec. 37. At the first meeting after their election the board of trustees shall elect from 
their number a president, a vice-president, a clerk, and a treasurer, who shall be the 
executive officers of the corporation. The board of trustees shall have the general 



136 SUGGESTIONS EESPECTING PKOPOSED CUEEENCY EEFOEM. 

managenent of the affairs and records of the corporation, and shall meet as often as 
may be necessary. It shall be their special duty — 

(a) To act upon applications for membership. 

(b) To act upon the expulsion of members. 

(c) To fix the amount of surety bond which shall be required from each officer 
having custody of the funds. 

(d) To recommend to the members the rate of interest which shall be paid upon the 
land reserve certificates or land bonds issued by the bank, also to fix the rate of interest 
which shall be allowed on other deposits. 

(e) To determine the rate of interest which shall be charged for loans. 

(f) To fill vacancies in the board of trustees or in the committee on loans, or in any 
of the offices, until the election and qualification of others to fill said vacancies. 

(g) To make recommendations to meetings of members relative to the dividends to 
be declared, amendments of the by-laws, and any other matters which in their opinion 
the members should decide. 

DUTIES OF THE COMMITTEE ON LOANS, 

Sec. 38. The committee on loans shall approve in writing an application for a loan 
or advance before the same shall be granted by the land bank. Every application for 
a loan shall be made in writing and shall state the purpose for which the loan is desired. 
No loan may be made unless the committee on loans is satisfied that it promises to ' 
benefit the borrower, nor unless it has received the unanimous approval in writing of 
all the members of the committee, but an applicant for a loan may appeal to the board 
of trustees from the decision of the committee on loans. 

AUDITING COMMITTEE. 

Sec. 39. The auditing committee shall inspect the securities, cash and accounts of 
the corporation, and supervise the acts of its board of trustees, committee on loans, 
and officers. At the expense of the corporation, the auditing committee shall employ 
chartered accountants to audit the books, records, and accounts, without previous 
notice to the trustees or officers, and with such frequency and at such times as they 
deem best. At the annual meeting of the members, the auditing committee shall 
submit their report to the members, including the results of said audit, together with 
such recommendations as they have to offer, and an epitome of their proceedings since 
the last previous meeting of the members. At any time, the auditing committee, by 
unanimous vote, may suspend the committee on loans or any member thereof, or any 
trustee or officer; and by a majority vote may call a meeting of the members to consider 
any violation of this act or of the by-laws, or any practice of the corporation which in 
the opinion of said committee is unauthorized. Within seven days after the suspen- 
sion of one or more trustees or officers or members of the committee on loans, the 
auditing committee shall cause notice to be given of a meeting of the members to take 
such action relative to such suspension as may seem necessary. The auditing com- 
mittee shall fill vacancies in their own number until the next annual meeting. 

LAND RESERVE CERTIFICATES. 

Sec. 40. (a) The permanent capital of the land bank shall consist of deposits in its 
land reserve fund, for which its land reserve certificates shall be issued. When a 
depositor increases or decreases his deposit, the outstanding certificate shall be sur- 
rendered and canceled and a new one issued for the correct amount. When issued in 
the name of any bank or of the State, such land reserve certificate shall be nontrans- 
ferable, nonnegotiable, nonhypothecable ; when issued to a natural person, or to a 
corporation other than a bank, or to an association or partnership, these restrictions 
shall not apply. The land bank shall never have outstanding its land bonds to an 
amount in excess of twenty times the sum of its land reserve certificates and surplus. 
The land bank may refuse to receive deposits in its land reserve, or may pay off some 
of its land reserve certificates, provided the remaining total of such deposits, together 
with the surplus, be not less than five per centum of the land bonds then outstanding. 

(b) Land reserve certificates shall receive not less than three per centum nor more 
than five per centum interest per annum, which shall be cumulative, to be paid out of 
current earnings and to be a first lien thereon; the rate of interest to be determined 
from time to time by the members' annual meeting, upon recommendation of the 
board of trustees. 

(c) A deposit may be withdrawn from the land reserve only as follows: Upon final 
liquidation of any bank which is a depositor, or of any corporate despositor, that 



tl 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 137 

portion of its desposits remaining after all its obligations (direct and indirect) to the 
land hank have been paid in full, may be withdrawn or transferred, less a pro rata 
part of any losses which may have occurred . The same procedure may be followed in 
the settlement of the estate of a deceased individual despositor, or his certificate may 
then be transferred to his heirs or assigns. But for any sums thus to be withdrawn, 
the land bank shall not be liable until it places an equal sum in its capital reserve, 
either from its surplus or from fresh deposits of outside capital. And no funds may be 
thus transferred to reserve from surplus, except out of the surplus which exceeds one- 
half of the reserve. 

(d) Deposits in the land reserve, also the surplus, may be invested not in mortgages 
upon real estate, but in other securities of the soundest character and availability, or 
redeposited subject to call among banks within this State, or otherwise so employed 
as always to be safe and available. But all uses of the land reserve funds must be 
approved in writing by a committee on investment and by a majority of the trustees; 
and shall be subject to the approval or disapproval in writing of the State board of 
banking commissioners, whose orders with respect thereto must be obeyed by the land 
bank under penalty provided in section thirty-three hereof. 

(e) Any cooperative bank organized pursuant to part one of this act may become a 
member of the land bank by depositing in the land reserve a sum not less than twenty- 
five per centum of the paid-in capital of such cooperative bank. As an impost for the 
privilege of doing business. under the laws of this State, and in consideration of the 
further privileges conferred upon them by this act, all other banking institutions and 
trust companies chartered under the laws of this State shall deposit in the land 
reserve an amount equal to hot less than one per centum, and may deposit therein not 
more than twenty-five per centum of its combined capital stock, surplus, and undivided 
profits (whereupon it becomes a member-bank equally with a cooperative bank), but 
such desposits in excess of one per centum shall be subject to the land bank's acceptance 
or rejection. Whenever a cooperative bank increases its capital, or as the capital, 
surplus, and undivided profits of any other State banking institution increase, the 
above percentages of such increase shall be deposited in the reserve of the land bank, 
subject to its acceptance. 

ISSUE OF LAND BONDS. 

Sec. 41. Upon the security of the instruments representative of loans, and of the 
first mortgages upon real estate located within this commonwealth by which such 
loans are secured, the land bank may issue land bonds bearing not less than three and 
one-half per centum, nor more than six per centum interest per annum, the interest and 
principal thereof to be payable as the trustees may determine and as set forth in said 
land bonds. The total principal of land bonds outstanding from the bank at any time 
shall not exceed at any date twenty times the amount of the land reserve fund and 
surplus combined. Interest upon bonds shall be paid out of current earnings, but all 
payments upon the principal of loans shall be applied to the redemption of bonds 
outstanding either by direct purchase of the same and their cancellation forthwith, or 
through the agency of a sinking fund. Bonds outstanding shall never exceed the 
principal unpaid upon outstanding loans secured by first mortgage upon real estate 
within this commonwealth. 

SURPLUS — DIVIDENDS . 

Sec. 42. (a) From the earnings of the land bank shall first be paid the interest due 
annually upon the land reserve certificates, or upon any unpaid accumulation thereof. 
Then the interest upon the bank's outstanding land bonds shall be paid. 

(b) Net earnings in excess thereof are to be carried into the surplus fund, until such 
surplus equals twenty-five per centum of the land reserve certificates then outstanding. 

(c) Then, three-fourths of such excess earnings shall be applied to surplus until it 
amounts to fifty per centum of the then land reserve fund ; meanwhile, the other fourth 
of such excess earnings may be paid out (upon recommendation by the trustees ratified 
by the voting members) as a cooperative profit-sharing dividend only upon such land 
reserve certificates as constitute not less than one-fourth of the capital stock of the 
member-banks. 

_(d) When the surplus equals the land reserve, the excess earnings may be equally 
divided between surplus, dividends upon reserve held by said member-banks, and 
profit-sharing credits to borrowers. Such dividends may be distributed in any year 
until the total income upon the reserve certificate specified — interest and dividends 
combined — amounts to not exceeding double the fixed rate of interest thereon. 

(e) The surplus may be invested in such manner as the by-laws and regulations 
provide. 



138 SUGGESTIONS EESPECTING PKOPOSED CUEEENCY EEPOEM. 
LAND BANK SECURITIES LEGAL INVESTMENTS. 

Sec. 43. Deposits in the land bank evidenced by its land reserve certificates, or its 
land bonds, shall be a legal investment for savings banks, trust companies, or other 
financial institutions chartered under the laws of this commonwealth. Such land 
reserve certificates and land banks shall also be a legal investment for trustees, execu- 
tors, administrators, or custodians of public or private funds, or corporation partner- 
ships or associations. 

No court shall recognize any claims by a third party to title in any such certificates 
or bonds, except only in case of loss or theft. 

LOANS. 

Sec. 44. No loan shall be made to an amount in excess of sixty-five per centum of the 
fair value of the real estate securing such loan, which must be located wholly within 
this commonwealth. The property offered as security for a loan shall be valued by 
three disinterested appraisers appointed by the land bank, or appointed by a member- 
bank and confirmed by the land bank. Loans shall be secured by first mortgage upon 
only such real estate the title to which is satisfactory to the land bank. Any member- 
bank shall act as the representative of the land bank within the limits of the territory 
of such member-bank as defined by the land bank. Within such areas, applications 
for loans shall be made to the land bank through the cooperative member-bank, which 
shall certify to the merits of the application, the value of the property, and give other 
information required by the land banks. For its services, the member-bank shall 
receive a commission of one-eighth of one per centum on all moneys handled by it 
between the borrower and the land bank. The former shall agree to keep a watchful 
eye upon the borrower, advise with him, and inform the land bank should the bor- 
rower's character or the real estate itself show diminution in value. The member- 
bank will not indorse the note or mortgage it recommends to the land bank, but it 
shall be responsible to the latter to the extent of twenty-five per centum of any loss 
which may ultimately occur upon such loan, unless it can prove that the land bank 
failed to act upon its warning uttered in time to prevent such loss. 

TAXATION OF LAND BANKS. 

Sec 45. (a) The land reserve certificates of any land bank incorporated under this 
act shall not be taxed in any way whatsoever so long as the rate of interest thereon 
does not exceed three per centum per annum, but all income therefrom in excess of 
three per centum per annum shall be taxable,^ and shall be exempt from all death 
duties or inheritance tax or taxes. 

(b) The land bonds of any such bank bearing not to exceed four per centum interest 
per annum, shall be subject only to the inheritance tax, but all income therefrom in 
excess of four per centum shall be taxable. 

(c) Notes and mortgages upon real estate, which constitute the security for said 
land reserve certificates or land bonds or both, shall not be taxable. If any loan is 
made by any land bank upon real estate in excess of the assessed value for public 
taxation of such real estate, such loan shall be specifically reported forthwith to the 
bank commissioner and to the local assessors, and the borrowers shall be subject to 
local taxation upon the full amount of such excess. 

(d) The purpose of this section, also of section twenty-four, is to obviate double 
taxation upon real estate, and to promote thrift among small depositors, borrowers, and 
investors, while confining to their not-for-profit character all the institutions authorized 
herein, by subjecting them to taxation upon the excess over and above the minima 
established by this act. 

payment of INTEREST AND PRINCIPAL OF LOANS. 

Sec. 46. A borrower may repay his loan by installments of such frequency and 
amounts as may be agreed upon, provided that not less than one per centum of the orig- 
inal amount of the mortgage shall be paid upon the principal thereof annually. The 
borrower may pay a larger installment upon the principal or the whole of it at any 
interest date. Such payments may be made in cash, or by tendering at par land 
bonds of the land bank of the same series as the loan. For failure to pay the interest 
or any installment required by the terms of the loan, the borrower may be fined as the 
by-laws prescribe. But the borrower shall never be required to pay more than the 
specified installment, nor to pay the principal before it is due: Provided, however, 




SUGGESTIONS KESPECTING PROPOSED CUEEENCY EEFOEM. 139 

That if. in the opinion of the land bank, the vahie of the mortgaged property suffers 
material deterioration from lack of proper management or from other causes, then and 
in that case the land bank may demand a larger payment upon the princiapl or the 
whole thereof, and the borrower failing to pay the same, the land bank may then fore- 
close upon the mortgage premises and sell the same at public or private sale, and should 
any deficit result, the borrower shall be personally liable therefor. In no case, how- 
ever, shall a borrower be liable for a sum greater than the amount of the unpaid portion 
of his loan with any accretions of interest thereon, or expenses incidental to the collec- 
tion thereof. When the principal and interest of any loan are fully paid, the borrower 
shall be entitled to a discharge in full of his note and mortgage. In no event does the 
borrower, or his note secured by mortgage, or said mortgage itself, assume any joint 
and several liability on behalf of other borrowers, or of the land bank, or of the invest- 
ors in land reserve certificates or land bonds. The land banks shall have the right 
to call the loan upon reasonable notice in case the title to the mortgaged property 
passes into other hands. The borrower shall pay all expenses incidental to examina- 
tion of title, but shall not be charged for appraisal. The total annuity to be paid by 
the borrower shall include (1) the rate of interest agreed upon, (2) an allowance for 
expenses of the land bank to an amount not exceeding one-half of one per centum annu- 
ally of the face of the loan, and (3) a payment upon the principal (amortization) of not 
less than one per centum of the original amount thereof. 

ANNUAL REPORT. 

Sec. 47. Within thirty days after the last business day of December in each year, 
every such corporation shall make to the State banking commissioners a report in such 
form as they may prescribe, signed by the president, treasurer, and a majority of the 
trustees, who shall officially certify and make oath that the report is correct according 
to their best knowledge and belief. With the same shall be filed the original of the 
auditing committee's report likewise attested. Any such corporation which fails to 
make the said report within the time herein prescribed shall forfeit to the common- 
wealth $50 for each day during which the failure continues. 



July 8, 1913. 
Hon. Robert L. Owen, 

Chairman Committee on Banlcing and Currency, 

United States Senate. 

My Dear Senator: I inclose herewith for your consideration 
letter from J. W. Offield, Seattle, Wash., which, as you will note, he 
requests me to present to your committee and which explains itself. 
Very truly, yours. 

Miles Poindexter, 

United States Senate. 

Seattle, Wash., June 27, 1913. 
Hon. Miles Poindexter, 

Washington, B.C. . 

Sir: Will you kindly present to the Senate and House Currency 
Committees my currency plan, which is as follows : 

To issue currency directly to landholders on the same terms as is 
now being issued to the banks, with a provision that 5 per cent of such 
currency shall be returned each year to the Treasury, this creating 
a fund from which the people could draw in case of need at any time, 
this currency to be handled through the postal department, and to 
distinguish it from other currency it might be called rents. These 
rents should run perpetually with the land unless voluntarily re- 
deemed. 

This plan is not entirely new with me and has been well studied out. 
And in my 70 years I have had some experience in public office, 



140 SUGGESTIONS EESPECTING PROPOSED CUKEENCY EEEOEM. 

having been four years in the State Senate of Oregon, one national 
convention, and the State conventions -of all States where I have 
resided. 

I feel safe ui assuriag you that my currency plan will be vastly 
popular and a blessing to the whole people. 

Hoping this plan will appeal to you and receive your attention, I am, 
Yours, respectfully, 

J. W. Offield. 



RocKHAM, S. Dak., July 10, 1913, 
Senator Owen. 

Dear Sir: I am glad to learn that you are opposed to bank-note 
currency and in favor of an issue of Treasury notes. Hope you may 
be successful in reforming our currency. 

I wish you were iconoclast enough to smash that fetish of gold 
redemption. Make your notes receivable for all public dues and a 
legal tender for debts and they will circulate. 

A just government will not do for one what it can not do for each 
citizen. If it allows bankers to issue their notes as money, it should 
allow all other citizens to do so on same terms. 
Yours, 

Geo. H. Steele. 



July 12, 1913. 
Hon. Robert L. Owen, 

United States Senate, Washington, i>, C. 

Dear Sir: In reading the Glass currency bill I have been impressed 
with certain of its provisions. As it now stands, the politicians will 
control the banking system, and this I think very dangerous. To 
some extent we have seen in our own State how this works out. 
PoUtical banking is not desirable in any way. 

I do not hke the idea of being compelled to contribute to the capital 
stock of any company and be cut off of any word or voice in its man- 
agement. This does not seem to me as fair or equitable to the stock- 
holders as a business proposition. 

In other words, it appears to me that this bill will result in the 
building up of a great political machine and compelling the banks to 
contribute all the money with httle or nothing to say in the manage- 
ment. Furthermore, it will result in the withdrawal of a large amount 
now kept in all reserve cities, and thereby lessen the capacity of all 
reserve banks for loaning to their customers to the extent of such 
withdrawals; and I do not see where the borrower is benefited. 

There are doubtless other and more important features in connec- 
tion with this bill, but I am only noting some of the objections which 
occur to me as being quite important and worthy of consideration 
before this bill is enacted into law. 
Respectfully, yours, 

S. R. Raymond, 
Vice President Security National Banlc, 

OMaJioma City, OMa. 



SUGGESTIONS RESPECTING PEOPOSED CUEEEXCY EEFOEM. 141 

Waurika, Okla., July I4, 1913. 
Robert L. Owen, WasJiington, D. C. 

Dear Mr. Owen: I received copy of the proposed new banking bill 
as framed by you, as I understand, and have digested same as best I 
could. It seems to me you have struck the keynote or object sought — • 
that is, to place the finances of this country in the hands or in reach 
of all the people and take it out of the hands of big busmess, that no 
man can get a corner on finance. It's a good one when worked out. 
Thanking you, I am. 

Yours, very truly, Wade Atkins, 

President Waurika National Bank. 



Washington, D. C, July 15, 1913. 
Hon. Robert L. Owen, 

Chairman Committee on Banking and Currency, 

United States Senate. 

My Dear Senator : I inclose here^ath another letter from Mr. R. C. 
Milliken in reference to the Owen-Glass bill. He has asked me to 
send you the same. 

Yours, truly, John F. Shafroth, 

United States Senator. 

Ilnclosure to Senator Shafroth's letter of July 15, 1913.] 

Washington, D. C, July 12, 1913. 
Senator John F. Shafroth, 

Senate Banking and Currency Committee. 

My Dear Senator: Please bear with me while I direct your atten- 
tion to another fundamental defect in the Owen-Glass currency bill, 
viz, the granting of a special privilege to the holders of the capital of 
the reserve banks which is raised by coercion. 

Each national bank is forced to subscribe to the stock of the reserve 
bank of its district to the extent of 20 per cent of its own capital. 
The only way a national bank may escape such forced subscription is 
to surrender its charter. The stock of the reserve banks can only be 
owned or held b}^ subscribing banks. When a subscribing bank goes 
into liquidation it must surrender to the reserve bank its stock hold- 
ing therein, for which the reserve bank pays in cash the book value. 

The object of the stock of a corporation is to inspire confidence in 
prospective creditors, and this is accomplished by creating the im- 
pression the corporation's capital is ample for all risks it may assume. 
Ordinarily the stock is subscribed for keeps, and the stockholders do 
not -possess the special privilege of shirking their responsibility to 
creditors. But how different it is with these corporations whose very 
foundations may be undermined at any time a subscribing bank may 
become dissatisfied with the arrangement by going into voluntary 
liquidation and surrendering their Federal charters for State charters. 
These are to be the most important corporations of the country, the 
heads of the credit system of the several sections. One of their 
duties will be to find gold for the protection of the $1,212,000,000 of 
asset currency they are authorized to issue. Another duty will be to 
find gold for the protection of their depositing creditors, aggregating 



142 SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

$2,000,000,000. Still another duty will be to find gold for the liqui- 
dation of all our commercial paper issued for the production and dis- 
tribution of our commerce, which aggregates $35,000,000,000 annu- 
ally. Surely corporations which will have such tremendous demand 
obligations imposed on them should have solid-rock foundations 
themselves. 

What stability would there be in this country if the stockholders 
of all our corporations possessed the right to demand in cash the book 
value of their stock holdings? None whatever. Yet the average 
corporation is not so dependent on public confidence as is the head of 
the credit system, all of whose obligations are payable on demand. 
The special privilege with which this stock is clothed is another of 
the many special considerations granted the subscribing banks for 
the coercion practiced on them under this bill. This is the most 
dangerous experiment ever dreamed of in this age of ''frenzied 
finance.'^ From what source do the authors obtain this vagary? 
The Aldrich plan, the very fountain of monetary legerdemain. Has 
it come to pass that the richest people on earth must resort to coercion 
to raise the capital for its most important public-service corporations ? 

The greatest liquidations of subscribing banks will come during 
times of depression and panic. So that the very time these corpora- 
tions should be strongest they will be weakest. What is worse the 
pubhc can not come to their rescue, as they are prohibited from sub- 
scribing to or owning those stocks. Every consideration dictates to 
my mind that that stock should be owned by the public, as is the case 
in every other country. Not only will the public carry those stocks 
at a less expense than will banking institutions, but the public will 
not exact from Congress such unconscionable special privileges as 
are granted under this bill. If these stocks are carried exclusively 
by banks they will be continually coming to Congress and exacting 
additional special privileges in consideration that they continue their 
work of public benefactors ( ?) , and the party in power, which is ever 
in dread of a panic, will continue to grant their requests. You may 
contend this is a violent presumption. In corroboration I have but 
to cite you to the sad spectacle of the authors of this bill amending it 
by giving a special privilege to the banks of the three central reserve 
cities after a conference with their representatives, and that amend- 
ment will prevent the system from working. Inexperienced public 
officials can never cope on equal terms with the experienced advo- 
cates of special privilege. 

The people of France carry the stock of the Bank of France and 
realize less than 3^ per cent annually on their investment. The peo- 
ple of England carry the stock of the Bank of England and realize less 
than 3 per cent annually on their investment. It is true that the 
stock of the Bank of France pays an annual dividend of 14 per cent, 
but its market value is $431 per $100, and the Bank of England's 
stock pays an annual dividend of from 8 to 10 per cent, but its 
market value is $335 per $100. It is to the public's good that those 
stocks stand high in the public estimation. The people of those 
foreign countries carry those stocks without exacting any special 
privilege; the vast majority of them do not possess the voting privi- 
lege. They only ask to be scantily remunerated on their investments. 
They carry those stocks just as the people of this country carry the 
underlying securities of our public-service corporations without the 



SUGGESTIOXS EESPECTING PROPOSED CUEEEXCY EEFOEM. 143 

voting privilege or any special privilege whatever and only ask to be 
poorly remunerated. 

In conclusion let me say there has been very little thinking done 
on the bill in question. It is taken from the Aldrich plan, the most 
vicious attempt at legislation this country ever experienced. The 
people at the last election condemned that scheme in no uncertain 
terms, and the people will destroy any party which enacts those 
principles into law. 



Siacerely, yours. 



R. C. MiLLIKEN. 



Los Alamos, N. Mex., July 15, 1913. 

My Dear Senator: I believe the national banks of this country 
have fully accompUshed the work which they were originally intended 
to do — in the financing of small railways, steamship lines and industries, 
and subsequently merging them into great trunk Ihies and industrial 
combuies, all the while discriminating against the farmer, who is 
the very backbone of our country. 

Therefore, in the framing of the new currency bill, it seems to me 
there should be some provision made whereby our national banks 
would be forced to loan a certain per cent of their deposits to farmers; 
or, at least, that portion which is deposited by farmers, and take as 
security Hens on cultivated land only, at one-third or one-half of its 
actual value. I firmly believe this would be the greatest factor in 
reducing the present high cost of hving in this country. Under the 
present national banking laws national banks are prohibited from 
loaning to farmers and taking land as security. They will take as 
security only live stock, which is so badly needed on the farm, thus 
curtaihng to a great extent the meat production. 

If I am correctly iaformed, statistics show that in 1870 each farmer 
in the United States was feeding two families in other pursuits of fife; 
in 1890 he was feeding three famihes; and in 1910 he was feeding a 
fraction over four families. Farming has not kept pace ui this 
country with other pursuits, and I firmly believe the main cause is 
that the farmer has no way of financing himself, whereby he can 
iQcrease his acreage or make his farm more productive. 

I consider this the most serious problem confronting this country 
to-day, and hope that some provision will be made by our Demo- 
cratic administration to overcome it. 
Yours, very truly, 

J. D. Hand. 

Senator Robert L. Owen, 

Washington, D. C. 



Pawnee, Okla., July 16, 1913. 
Gentlemen of the Banlcing and Currency Committee, United States 

Senate: 

AYithout desiring in any manner to discredit the intention of any 
member of your committee, I respectfuUy submit the following com- 
ment upon S. 2639, which, I believe, I could prove to you to be 
correct in a short time if we could meet personally. S. 2639 to me 
appears to be based upon the erroneous presumption that a privately 

2736—13 10 



344 SUGGESTIONS EESPECTING PEOPOSED CUKEENCY EEFOEM. 

owned bank is a necessity, and that it is the duty of the franiers of this 
bill to assure such banks a profit regardless of the fact that the people 
must pay such profits, thus adding to the tax burdens of the people 
by the discounting of their bonds. Assuming that a privately owned 
bank is a necessity, I raise the following objections to bill S. 2639: 

It permits the discounting of State and municipal bonds, thus 
r.dding to the profits of the bankers and to the burdens of the people. 

It does not require national, State, or regional banks to respect the 
usury laws of the State in which the banks are located and to which 
State they look for protection. It does not penalize them for the 
violation of the usury laws of any State nor provide a maximum rate 
of interest. This omission, in my opinion, shows that the authors of 
this bni do not have the proper respect for the laws of the State to 
which they are accredited. The banks should not have representa- 
tion on the Federal reserve board. This board should be elected by 
the House of Representatives or by Congress and not contain the two 
Cabinet ofiicers, as one does not have to look backward many admin- 
istrations to find Cabinet officers whose relations with Wall Street 
were too close for the comfort and prosperity of the people. The 
organization committee, until such time as the Federal banking board 
shall supplant them, is all right (p. 2, lines 1, 2, 3), but each State 
capital should be designated by law as being the chief reserve city of 
that State. Page 5, lines 24 and 25, should be chosen by the States 
and should represent public interests and should not be a director or 
stockholder in any bank. Class B should not be chosen by the same 
power as Class A. I suggest that Congress make the selection. No 
member of class C should be an interested banker or a law}^er who for 
some years past has received any fees from any bank or banker, and 
should be prohibited from receiving any fees for legal services while a 
member of board of directors. Section 7 is all right, excepting that 
all of net earnings after dividends are paid should be returned to 
United States Government. If, however, one-half is permitted to be 
retained by banks, all net earnings should be taxed after the 5 per 
cent dividend is paid especially for the maintenance of the public 
schools and public roads. 

If, as under section 11, the two Cabinet officers and Comptroller of 
Currency are three of seven members (and seven are enough) of the 
Federal reserve board, then the House of Representatives should 
choose the other four members and the Senate approve of their choice. 
The terms of offi.ce and salary are satisfactory if subject to recall by 
Congress. 

This administration so far has been satisfactory, except on sugar 
policy, which should be on free list now; however, he is probably 
advised wrong a thousand times to every time he is rightly advised. 
I believe this to be the only administration in which the interests of 
the people are or were considered since that of Abe Lincoln. 

Page 22, section 15. Rates of discount should be rigid, or at least 
there be established a maximum rate of discount on each class of 
security, and such rates be observed by all banks participating in any 
manner with the reserve banks. 

AU banks should be compelled to use the reserve banks at capital 
city as a clearing house and stop all discriminations. 

Page 29, section 20. Under no circumstances should Government 
3 per cent bonds be substituted for 2 per cent circulation bonds, as 



ti 



SUGGESTIONS KESPECTING PKOPOSED CUEEENCY EEFOEM^ 145 

they would be purchased by estates and old people who would hoard 
their money in 3 per cent bonds, and thus contract the volume of 
currency. 

Section 24, page 34, can not be made too strict. The examinations 
should be thorough and often. Section 27, page 38, is expressly for 
the favored speculator in land and can be used to freeze out persons 
who are in debt on their homes, but who won't suck the shirt tail of 
some — banker. 

It can be used to secure money for feeding live stock, but it is of no 
value whatever to the actual farmer unless the bankers, many of 
whom are legally outlaws, condescend to extend aid to some party 
who is willing to put their neck in the banker's yoke. If this clause 
remains in the bill the banker should not be allowed any discretion 
in the matter. The maximum rate should be provided and no dis- 
crimination permitted. Of course the title should be perfect and 
such mortgages renewable without additional fees. The time limit 
should not be less than 5 years or more than 20 years; partial pay- 
ment plan optional with borrower. 

The $712,000,000 2 per cent circulation bonds should be retired and 
2 per cent 10 or 20 year farm mortgages (circulation privilege), par- 
tial payment plan optional to borrower, be substituted: Providedy 
That such farm mortgage must bear no more than 2 per cent annual 
interest, no fees or commission charged, and must be obtained on the 
farm of an actual resident on the farm and in the county and State 
in which the bank is situated. 

That part of the Aldrich-Vreeland bill which prohibits the issuance 
of a check by a depositor for an amount of less than $1 is a most 
damnable injustice to the farmer and should be repealed; it is violated 
every day, thus creating a contempt for law. No Federal reserve 
bank or its stockholders should be permitted to make a loan to a 
dealer in futures; neither should they make a loan to any bank that 
handles such loans. I may not fully understand section 13, lines 20 
to 25, page 19, lines 1 to 4, page 20, but suggest that stocks and 
bonds and mortgages of commercial organizations of aU kinds, in- 
cluding common carriers, should be placed upon the same basis as 
farm property in section 27, page 38, and such securities offered 
should not at any time be received if the outstanding indebtedness, 
including the obligation offered as security, exceeds 50 per cent of the 
physical valuation of the property against which the mortgage or 
commercial paper is issued. 

Gentlemen, your S. 2639 has many good features; but, taken as a 
whole, is, in the opinion of this farmer writer, woefully lacking in 
statesmanship. 

Without attempting to offer other than a rough and incomplete 
outline, I respectfully submit the following. S. 2639, section 1, 
should read: 

A BILL To provide for the furnistiing of an elastic currency and to prevent the control of the finances of 
the nation by privately owned financial institutions, to provide more effective method by which the 
States and the citizens thereof may enjoy the benefits desired by the maintenance of a central govern- 
ment, to reduce the burden of taxation of the citi7.ens of the respective States, to provide a revenue for 
the National Government, to prevent the continuation of special privileges now enjoyed by favored 
financial institutions, and to actually establish and maintain the principle of honest government as 
exprassed by the words: "Equal rights to all and special privileges to none;" to provide for the regula- 
tion of financial institutions and the control of national finances and for other purposes. 

Be it enacted by the Senate and House of Representatives of the United States of America 
in Congress assembled, That the short title of this act shall be the "Federal elastic 
currency act." 



146 SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

Sec. 2. That within 90 days after the passage and approval of this act, or as soon 
thereafter as practicable, the Secretary of the Treasury, Secretary of Agriculture, 
Comptroller of the Currency, and four others, elected by the House of Representa- 
tives — no one of the four elected may be an officer or director or stockholder or attorney 
for any bank or banker, and two of whom shall be actual farmers — hereinafter known 
as the Federal banking board, shall establish in the capital city of each State of the 
continental United States a bank, known as the Federal and State Central Bank of 

• State, and which bank shall be the clearing house for all banks within that 

State, which bank, when the State desires to take over, as hereinafter provided, 
shall be permitted to do so by assuming the assets and liability of said bank and 
depositing currency, or State bonds, with the Federal banking board to cover the 
amount of assets less the liabilities. The State bonds so deposited shall bear interest 
at the rate of 1 per cent per annum and may be increased or diminished by each 
State, providing, however, that no State may issue bonds for more than 70 per cent 
of the average taxable valuation of the property of the State for the pieceding five 
years. That the bank so established shall be the property of the Federal Govern- 
ment until ownership is assumed by the State in which it is located. The governor, 
attorney general, state auditor, state treasurer, and bank commissioner and the chair- 
men of the various boards of county commissioners shall constitute the board of direc- 
tors. The bank so established shall establish branch banks in each county seat and 
in each city having 300 or more inhabitants. 

Sec. 3. Until such time as the State shall assume control of the bank heretofore 
established the bank shall be in the control of an agent of the Federal banking board, 
who shall perform all duties herein provided for by the State-owned bank. It shall 
be the duty of such agent or of the bank to accept State bonds when they bear 1 per 
cent annual interest, county bonds when they bear 2 per cent interest, municipal 
and school district bonds when they bear 3 per cent annual interest, when such bonds 
shall have been approved by the Federal banking board, and providing that Buch 
bonds shall not have been issued for other than public improvements and publicly 
owned utilities, and providing that no bonds may be issued for more than 70 per 
cent of the average taxable valuation of the governmental district issuing the bonds 
for the preceding five years. All bonds to be payable on partial payment plan. 

The Comptroller of the Currency or National Treasurer shall issue currency to the 
proper representative of the governmental district issuing said bonds and equal to 
the face thereof. 

Actual residents. — Farm mortgages bearing 3 per cent annual interest shall be 
accepted by the bank at the county seat of the county in which the farm is situated 
in exchange for currency when accompanied by an abstract showing proper title 
to the property and when approved by the county commissioners. Each county 
shall be responsible for the payment of each mortgage issued therein and when said 
mortgage is approved by proper authority it may be received as security at the bank 
located at each capital city. Should the farm so mortgaged pass from the ownership 
of a bona fide resident on the farm the mortgage would bear 5 per cent annual inter- 
est unless such new owner inherited such land through the death of the previous 
owner and unless such heir is a minor the farm could not be remortgaged at the 3 
per cent rate unless occupied during the life of the mortgage by the bona fide owner 
of said land. No powers or privileges should be given to privately owned financial 
institutions which are denied to States. 

If the above provisions are rewritten in legal form and inserted 
in S. 2639, it will save the taxpayers of Oklahoma over $8,000,000 
annually and provide a revenue for the National Government of 
1 per cent upon the entire bonded and mortgage indebtedness of the 
State and its citizens. It will provide a revenue for the National 
Government equal to its needs. It will make levies for State taxes 
unnecessary. 

Better homes may be built; better live stock kept, and the fertility 
of the soil conserved; better roads made; better schools established; 
more people will return to rural life ; the w^hite-slave trade practically 
wipad out, and wars between capital and labor made impossible. 

Gentlemen, the banker holds in the minds of the public the same 
position held by the saloon keeper of 30 years ago, and unless the 
Democratic Party now in power halts the greed and outlawry of the 
present-day banker, it will be on trial the last time ; and unless pro- 



SUGGESTIONS KESPECTING PROPOSED CURRENCY REFORM. 147 

vision is made to prevent the unlawful confiscation of property of 
the poor, we then must submit to the lawful confiscation of the prop- 
erty of the rich. 

The Civil War would never have been fought had not the bankers 
incited the men engaged to do murder that they (the bankers) might 
profit at the expense of the people. 

Upon the results obtained from your action in this matter you 
will be judged by the American people as to whether you are the 
representatives of States and the people thereof, or otherwise. 

I have personally conversed with over a hundred farmers and 
business men, and each has agreed with me that to extend to 
privately owned financial institutions powers and privileges not 
given to each of the several States is a flagrant abuse of power and a 
betrayal of the people. 

The third biennial report of State auditor of Oklahoma, December 1, 
1910, to November 30, 1912, shows $7,668,411.27, issued in the form 
of bonds, interest rate from 5^ to 7 per cent. Under my plan the 
National Government would have received $76,684.11 annually. 
Averaging the rate at 6 per cent, the loss to the people is approxi- 
mately $460,104.67 annually; net saving to the people under my 
plan, approximately $383,420.56 annually, which would have been 
acceptable as a saving in 23 months, during which time we had a 
failure of crops. There would be no need of a tariff even for revenue. 

I only ask that you consider the interests of the people — one hundred 
million of them — as being paramount to the interests of some 7,500 — ■ 
national bankers and their stockholders. 

It costs the people of Pawnee County, Okla., over $4,500 a month 
in salaries to maintain the banks here, and not one of them is a 
benefit or a necessity, and I am not acquainted with one banker in 
this State who in my opinion I can not prove to be legally an outlaw. 
I am a farmer and have no other financial interests. 

You may decide for yourselves which you are to receiva — the bless- 
ings or otherwise of the American people — but one or the other you 
will ^urely receive and it may not be of your choice either. 

Respectfully submitted. Yours for a good government properly 
administered. 

I am, Owsley Lonergan. 



Milwaukee, Wis., July 16, 1913. 
Senator Robert L. Owen, 

Washington, D. C. 

Dear Senator: Permit me to extend to you the thanks of the 
Wisconsin Bankers' Association for the 800 copies of the currency 
bill, with your explanation thereof, received from you this week. 

These biQs have all been remailed to every bank in Wisconsin, 
accompanied by a letter (in separate envelope) similar to the one 
inclosed herewith. 

I am already receiving commendation for sending these to our 
bankers, for all are interested in the subject, and I trust some meas- 
ure will soon be enacted which will enable the country banker with a 
note case full of good notes to secure cash on them in case of neces- 
sity, especially when the cause is entirely removed from him or his 
locahty. 



148 xSUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

May I be pardoned for suggesting, as a result of 20 years' banking 
in rural communities, that to amend present law as to loaning upon 
real estate is very desirable, but that no change using as a basis for 
amount of such loans the bank's capital and surplus would be of 
any assistance to the banks or the rural communities? 

It seems to me the proper basis would be the bank's total loans, 
or its total deposits, and then permit a certain percentage of such to 
be loaned upon first-mortgage security. A fair percentage would be 
25 per cent, in my opinion. 

I am taking the liberty of inclosing you a pamphlet explaining a 
system of insurance of bank deposits which Wisconsin bankers are 
endeavoring to complete, believing it to be more sound than any 
compulsory guaranty of deposit law, unless the latter could be by 
Government. 

A guaranty plan by the Government could be inaugurated through 
the use of '^ seigniorage," and the profit to the Government from lost 
and destroyed currency, of which two funds the Government has 
become possessed of $500,000,000 in the past 40 years, surely a 
sufficient guaranty fund. 

Asking your pardon for offering suggestions, and again thanking 
you for the pamphlets, I remain, 

Sincerely, yours, Geo. D. Bartlett, 

Secretary Wisconsin Banlcers' Association. 



[Inclosure to Mr. Bartlett's letter of July 16, 1913.] 
Tentative Plan for Mutual Insurance of Bank Deposits. 

[EXPLANATORY NOTES.] 
TENTATIVE PLAN. ARTICLES OF ASSOCIATION. 

Know all men by these presents, that The articles follow the usual corporate 
the undersigned, adult residents of the form. 
State of Wisconsin, do hereby make, sigu, 
and agree to the following: 

ARTICLES OF ORGANIZATION. 

The undersigned have associated and Law requires at least 15 residents, 

do hereby associate themselves together 
for the purpose of forming a corporation 
under chapters 86 and 89 of the Statutes 
of 1898 and the acts amendatory thereof 
and supplementary thereto, including es- 
pecially chapter 460 of the laws of 1909. 

Article 1. The business and purposes of Section 1897, subsection 9, authorizes 
such corporation shall be the insurance of such insurance company, 
deposits or depositors in banks. 

Art. 2. The name of such corporation Section 1897b requires that if the lia- 
shall be the Bank Deposit Limited Mutual bility of the members to the company, 
Insurance Co., and its location, home and thereby the liability of the company 
office, principal place of business, and to the members, shall be limited, the 
place of holding its annual meetings for name of such corporation shall contain the 
members shall be in the city of Madi- words "limited mutual." (Seem.) 
son, in the county of Dane, and State of The city of Madison, being the location 
Wisconsin. ^ of the capital and the banking and insur- 

ance departments, is deemed the most 
convenient place for the home office. 



SUGGESTIONS EESPECTING PROPOSED CUERENCY REFORM. 149 



Art. 3. (a) This corporation shall be 
a mutual insurance corporation without 
capital stock. 

(6) The liability of members of this cor- 
poration is limited to the annual premium. 



Art. 4. The general officers of said cor- 
poration shall be a president, vice presi- 
dent, secretary, and treasurer, and a board 
of directors consisting of nine individuals. 

Art. 5. The principal duties of the 
president shall be to preside at all meet- 
ings of the board of directors and to sign 
all policies, certificates, deeds, leases, 
conveyances, and other contracts exe- 
cuted by the corporation, and to have a 
general supervision of the affairs of the 
corporation. 

The principal duties of the vice presi- 
dent shall be to discharge the duties of 
the president in the event of the absence 
or disability for any cause whatever of 
the latter. 

The principal duties of the secretary 
shall be to countersign all policies, cer- 
tificates, deeds, leases, conveyances, and 
other contracts executed by the corpora- 
tion, affix the seal of the corporation to 
such papers as shall be required or 
directed to be sealed, and to keep a record 
of the proceedings of the board of direc- 
tors, and to safely and systematically 
keep all books, papers, records, and docu- 
ments belonging to the corporation, or in 
anywise pertaining to the business thereof. 

The principal duties of the treasurer 
shall be to keep and account for all 
moneys, credits and property, of any 
and every nature, of the corporation, 
which shall come into his hands, and 
keep an accurate account of all moneys 
received and disbursed, and proper 
vouchers for moneys disbursed, and to 
render such accounts, statements, and 
inventories of moneys received and dis- 
bursed, and of money and property on 
hand and generally of all matters per- 
taining to this office, annually, or oftener, 
as shall be required by the board of 
directors. 

The board of directors may provide for 
the appointment of such additional 
officers as they may deem for the best 
interests of the corporation. 

Whenever the board of directors may 
so order, the. offices of secretary and 
treasurer may be held by the same person. 

The said officers shall perform such 
additional or different duties as shall 
from time to time be imposed or required 
by the board of directors or as may be 
prescribed from time to time by the by- 
laws. 



' Under section 1897 such company can 
transact no other kind of insurance . 

Section 1897c authorizes the limitation 
of liability to the annual premium or a 
specified number of times the annual pre- 
mium; thus no assessments are possible. 
(See m, policy form.) 



Duties of officers similar to those in 
other corporations. 



Makes possible appointment of exam- 
iners by directors as they deem desirable, 
and under such regulations as they may 
determine. 



150 SUGGESTIONS EESPECTING PROPOSED CURRENCY REFORM. 



BY-LAWS. 

Art. 6. Every person, corporation, asso- 
ciation, or partnership insured shall be a 
member and shall have one vote. 

Art. 7. The time and place of holding 
the first meeting of the corporation for the 
election of officers and transaction of other 

business shall be the day of 

19 — , at ^ — , in the city of Madison, 

in the county of Dane and State of Wis- 
consin. 

Art. 8. These articles may be amended 
by a vote of three-fourths of the members 
voting at a regular or special meeting, 
after the proposed amendment has been 
filed with the secretary and the commis- 
sioner of banking and commissioner of 
insurance and a copy thereof, with notice 
of the time and place of meeting, has been 
mailed to each member at least 30 days 
prior to such meeting. 

In witness whereof, we have hereunto 

set our hands this day of 

191—. 



Section 1897c provides for this repre- 
sentation. 

The time and place for the first meet- 
ing for the election of officers must be 
fixed in articles. 



To be signed and acknowledged by 
not less than 15 resident persons. 



PROPOSED BY-LAWS OP THE BANK DEPOSIT 
LIMITED MUTUAL INSURANCE COM- 
PANY. 

1. The annual meeting of the members 
shall be held on the fourth Tuesday of 
January in each year at the office of the 
secretary, at Madison, Wis., or such other 
place as may be designated by the board 
of directors. 

2. Special meetings of the members 
shall be called by the secretary upon the 
order of the board of directors, or on 
written request of 50 members, filed with 
the secretary; and notice of each special 
meeting shall be given by mailing a copy 
of the notice to each member at least 10 
days before such meeting. 

3. Regular meetings of the board of 
directors shall be held quarterly on the 
fourth Wednesday of January, April, 
July, and October of each year. 

4. Special meetings of the board of 
directors shall be called by the secretary 
upon the order of the president or of any 
two directors. 

5. Any State or national bank or trust 
company, authorized to transact and 
transacting the business of banking in the 
State of Wisconsin, shall be entitled to 
membership in this corporation upon the 
expiration of 30 days after filing written 
application with the secretary and the 
payment of the surplus and premiums 
required by the by-laws, provided that 
the taking effect of such membership 
may be postponed by the board of direc- 
tors for a period or periods of 60 days 
each which together shall not exceed 
one year from the date of filing the appli- 



BY-LAWS. 



Members' annual outino:. 



Members' special meetings. 



Directors' regular meetings. 



Directors' special meetings. 



Membership. Any state or national 
bank or trust company applying for 
membership automatically becomes such 
member upon the expiration of 30 days 
after filing its application for member- 
ship and paying the deposit, unless within 
the 30 days the same be postponed by the 
board of directors. The limitation on the 
right of postponement beyond one year 
without the seven-ninths vote is to pre- 
vent action which might be inspired by 
prej\idice or to favor a competitive bank. 

All applications passed upon by board 
of directors. 




I 



SUGGESTIONS EESPECTING PROPOSED CUEEENCY EEFOEM. 151 



cation, unless a longer postponement be 
approved by an affii'mative vote of at 
least seven-ninths of the members of the 
board of directors after a full hearing by 
the bank before such board . Within five 
days notice of each such application and 
of each postponement and the reasons 
therefor shall be given by the company 
to the commissioner of banking, and in 
case of a national bank to the Comptroller 
<.>f Currency. 

6. At the first meeting of the members 
there shall be elected three directors for 
the term of one year, three directors for 
the term of two years, and three directors 
for the term of three years, and thereafter 
directors shall be elected for the term of 
three years, or to fill the unexpired term, 
whenever a vacancy has occurred. No 
person shall be qualified to act as director 
unless he shall be a stockholder or a bank 
member, located within a group district 
of the Wisconsin Bankers' Association, 
and be a resident of such district; nor if 
the district within which he resides shall 
then have a greater number of directors 
than any other such district. Any di- 
rector who shall cease to haA^e the quali- 
fications required of him for his election, 
or who shall fail to attend three consecu- 
tive meetings of the board of directors, 
shall thereby ipso facto vacate his office. 
The board of directors shall hold its first 
regular meeting immediately following 
the annual meeting, and at such meeting 
shall elect the officers for the ensuing year 
and shall also fill vacancies in such offices 
and in the board of directors for the unex- 
pired portion of any year. 

7. The application and policy shall be 
uniform in the following form, and the 
requirements of such form are made a part 
of the by-laws: 



Expense of examinations paid by in- 
surance company. 

Notice of postponement upon an appli- 
cation to the commissioner (or comptrol- 
ler) is required in order that he may know 
of any question raised in regard to any 
bank. 



The division of directors into classes 
insures greater permanency in manage- 
ment; and in case of vacancy it should 
be filled by election at the first oppor- 
tunity. 

To secure representation for each part 
of the State it is provided that each group 
district shall have one director before any 
additional directors are elected. The nine 
directors will give one director to each 
district of Wisconsin Bankers' Associa- 
tion, and one additional to be elected from 
any district. All the directors, of course, 
are elected by all members, and must be 
resident stockholders of bank in the dis- 
trict represented. 

To insure such representation to each 
district it is necessary to require that the 
director vacate office on removal from dis- 
trict or on disposing of his interests as 
stockholder or on failure to attend meet- 
ings. 

The officers are elected by the board of 
directors, and vacancies among the offi- 
cers and directors are filled by the di- 
rectors. 



The whole form of application and pol- 
icy is incorporated into the by-laws, 
which obviates the necessity of repeating 
their provisions in the by-laws. 



FORM OF APPLICATION. 



In accordance 
adopted on the 



with the 
day of 



resolution 
191- 



a copy of which is hereto attached, the 

• Bank of hereby applies for 

insurance in the Bank Deposit Limited 
Mutual Insurance Co. under the form of 
policy hereto attached and incorporated 
herein and made a part hereof, and agrees 
to its terms and conditions, and hereby 

designates ■ of to vote 

and act for said bank until this appoint- 
ment is revoked and another designation 
is made. 
Dated — — , 1912. 



By-^ . 

(President or cashier.) 



Application for membership. This is 
prescribed that all may be uniform and 
that the bank shall designate the person 
who is to represent it in company meet- 
ings. 



152 SUGGESIIONS RESPECTING PROPOSED CURRENCY REFORM. 



COPY OP RESOLUTION TO BE ADOPTED BY 
BANK. 



Resolved, That the 



Bank of 

make application for insurance in 

the Bank Deposit Limited Mutual Insur- 
ance Co., and hereby designates 

of to vote and act for said 

bank until this appointment is revoked 
and another designation is made. 

Adopted this day of , 1912. 

8. The surplus contribution of each 
member shall be evidenced by surplus 
notes in the following form: 



_ Form of resolution directing applica- 
tion for membership. 



(See form of surplus note for explana- 
tion . ) 



FORM OP SURPLUS NOTE TO BE GIVEN BY 
INSURANCE COMPANY TO BANKS POR 
ADVANCES TO RESERVE FUND. 



Madison, Wis. 



19—. 

In consideration of receiving the prin- 
cipal of this note without discount or pay- 
ment of commission, the Bank Deposit 
Limited Mutual Insurance Co. does here- 
by promise to pay to the order of 

Bank of , Wis., the sum of 

dollars ($ ) with interest at the rate 

of 3 per cent per annum. 

The principal shall be repaid after not 
less than five years from date, and only 
when the surplus of the company over all 
liabilities is double that of the principal 
then unpaid on all the surplus notes out- 
standing. 

The interest shall be payable only 
from the surplus and shall be payable 
annually on the 1st day of January. 

On dissolution of the company the 
principal and interest shall be payable 
from any surplus remaining. 

Except as aforesaid this note and the 
indebtedness evidenced thereby shall 
not be a liability or a claim against any 
of the assets of the Bank Deposit Lim- 
ited Mutual Insurance Co. 

BANK DEPOSIT LIMITED MUTUAL INSUR- 
ANCE CO. 



By — — 

Countersigned by 
retary. 



President. 



Sec- 



9. These by-laws may be amended at 
any regular or special meeting of the 
members after the proposed amendment 
has been filed with the secretary, the 
commissioner of banking, the commis- 
sioner of insurance, and Comptroller of 
the Currency in case of a national bank, 
and a copy thereof, with notice of the 
time and place of meeting, has been 
mailed to each member at least 30 days 
prior to such meeting; provided, that no 



SURPLUS NOTE. 



To comply with the law above re- 
ferred to. 

Amount to be one-half of 1 per cent of 
average deposit. 

Interest is fixed at 3 per cent to offset 
interest allowed on deposit. 



This time is required in order that 
different members may be repaid in the 
order in which the advance is made to 
the company. The proceeds of the loan 
to remain on deposit with the bank un- 
til necessarily used for losses or for repay- 
ment of loan. 

This leaves the company with a sol- 
vent showing at all times without regard 
to the surplus notes outstanding. (See 
law a below.) 



4 



The amendment of by-laws made by 
majority vote of the members. 

To amend acticle 5, relating to mem- 
bership, a three-fourths vote is required, 
in order that there may be no change 
without the general consent of the 
members. 



SUGGESTIONS RESPECTING PEOPOSED CUEEENCY EEFOEM. 153 

amendment to article 5, relating to mem- 
bership, shall take effect unless approved 
by a vote of three-fourths of the members 
voting at such meeting. 



FORM OP INSURANCE POLICY. 

(a) The Bank Deposit Limited Mu- 
tual Insurance Co., having its home office 
at Madison, Wis., in consideration of a 
contribution to its surplus of one-half 
of 1 per cent upon the average amount 
of insurance calculated upon the deposits 
of the preceding calendar year, evidenced 
by a surplus note issued herewith, and 
the payment of the premium hereinafter 
specified, which sums have been and 
shall hereafter be paid by being cred- 
ited by the Bank of , the 

insured, to the said insurance company 
as a deposit subject to check, to draw 
interest at the rate of 3 per cent per 
annum to be credited on the 31st day of 
December in each year, does hereby 
insure and agree to pay to the other- 
wise unsecured depositors in and for 
the account of said bank the amounts 
of their several deposits, less legal set- 
off, or such proportion of such deposits 
as herein specified, and as in the aggre- 
gate shall not exceed the amount of 
this insurance, upon the conditions and 
in the manner following: 

[Excluding deposits on which the in- 
terest agreed to be paid, directly or in- 
directly, shall exceed 3 per cent per 
annum.] 



(6) Payment shall be made to the 
depositors within 30 days after an order 
shall be made or approved by the com- 
missioner of banking, or in case of a 
national bank the Comptroller of the 
Currency, for the liquidation of said 
bank, according to law, or whenever, 



Form of policy (a). 

A contribution to the surplus by each 
policyholder is pro\dded for under sec- 
tion 1897g (chap. 275, laws of 1911), 
which reads: 

"Subject to the conditions of this sub- 
section, any mutual insurance company 
may borrow money without discount or 
the payment of commissions, and upon 
receiving the full amount of the prin- 
cipal to be used solely for the business 
of insurance, may issue its notes, to be 
known as surplus notes, which shall 
fully recite said conditions. Except as 
herein provided, such notes and indebt- 
edness shall not be a liability or claim 
against any of the assets of the com- 
pany. The principal shall be payable 
only when the amount of the surplus of 
the company over all liabilities is 
double that of such principal then un- 
paid. The interest shall only be pay- 
able from the surplus and shall not 
exceed such sum as may be fixed nor 
in any case 10 per cent per annum. On 
a dissolution of the company, the princi- 
pal and interest shall be payable from 
the surplus. The amount thereof out- 
standing with the unpaid interest shall 
be stated in each annual report." 

Each bank policyholder advances 
one-half of 1 per cent on the amount of 
its policy to provide a surplus fund. 
For this advance the bank receives the 
note of the insurance company, draw- 
ing 3 per cent, which note the bank can 
carry in its assets, the proceeds being 
left on deposit with that bank by the 
insurance company. 

Maximum premium, one-fourth of 1 
per cent credited as a deposit with each 
bank member, and 3 per cent interest 
thereon paid to the insurance company. 

Return to policyholders of all pay- 
ments in excess of actual cost (losses and 
expenses). (See j and p.) 

Depositors holding other securities 
for their deposits are not to be insured. 

The insurance covers the full amount 
of the deposit, except in case of deposits 
exceeding amount of insurance permit- 
ted by law, and where interest in excess 
of 3 per cent is paid by bank. (See/.) 

Explains when depositors are to be 
paid by the company, following a bank 
failure. i 



154 SUGGESTIONS EESPECTING PEOPOSED CURKENCY EEFOEM. 



prior to any such order for liquidation, 
the commissioner of banking, or in case 
of a national bank the Comptroller of the 
Currency, upon insolvency or suspension 
of said bank, shall order such payment 
to the depositors; and upon receipt of 
proof of the amount of deposit, less legal 
set-offs, and an assignment to this com- 
pany of the proportion thereof repre- 
sented by the payment made to such 
depositor. 

(c) Such payment shall operate to 
subrogate the insurance company to the 
claims of the otherwise unsecured de- 
positors against the assets and stock- 
holders in the proportion that the 
amount actually paid to each such de- 
positor by the insurance company bears 
to the amount due such depositor from 
said bank. 



{d) The maximum amount of insur- 
ance under this policy shall be three 
times the average policy of the company 
and is fixed for the current calendar year 
at $ (note), subject to readjust- 
ment by an indorsement or rider at the 
beginning of any calendar year. 

(Note to be filled in with the same 
amount in all policies issued during the 
calendar year.) 

(e) AVhere the amount of insurance is 
less than the otherwise unsecured de- 
posits the insurance company shall pay 
only such part of each such deposit as the 
amount of insurance bears to the then 
total otherwise unsecured deposits. 

(/) In the proportion the amount of 
insurance bears to the total otherwise 
unsecured deposits, the insurance shall 
cover the whole of each such deposit 
where the interest, if any, directly or 
indirectly paid or agreed to be paid to 
the depositors, shall be 3 per cent or less 
per annum. The insurance shall not 
apply to a deposit where such interest 
exceeds 3 per cent. The said bank shall 
not agree to pay, directly or indirectly, 
interest to any depositor in excess of 3 
per cent per annum, and shall not violate 
any Federal or State law applying to said 
bank and relating to banking. 

ig) The substance of the foregoing par- 
agraph, as prepared by the insurance 
company, shall be printed or stamped 
upon each certificate, pass book, or other 
evidence of deposit issued by said bank, 
and upon every advertisement of said 
bank referring in any manner to such 
insurance . 

No advert;isement referring in any man- 
ner to this insurance shall be issued or 
published by said bank until a copy 
thereof has been filed with this company, 
nor at any time after disapproval thereof 
by this company. 



All assets go to insurance company 
and depositors before stockholders have 
any share. 

The insurance company becomes the 
assignee of such part of the claim of the 
depositor against the failed bank, as the 
amount paid by the company bears to 
the depositor's total claim, which claim 
will be collected by the insurance com- 
pany against the bank, the same as the 
claim of any other creditor. 

{d) By section 1898, subsection 1, the 
maximum single risk can not exceed tliree 
times the average policy. To make it 
definite, such maximum is fixed by the 
directors for the calendar year at the be- 
ginning of each calendar year. 



This makes the bank a coinsurer, 
where deposits exceed insurance. 



Only about 30 banks have deposits in 
excess of what could be covered by this 
insurance. 

The insurance to apply in full on de- 
posits bearing interest at 3 per cent or 
less. No insurance issued when interest 
in excess of 3 per cent is promised by the 
bank. This is an important change in 
original plan. 

A depositor promised interest in ex- 
cess of 3 per cent bears his own risk. 



This is to give actual notice to all de- 
positors of the conditions of the insurance 
which are expressed in foregoing para- 
graphs. 



This permits the insurance company 
to have oversight upon advertisements 
in order to protect the company against 
the wrong use of its protection. 



SUGGESTIONS RESPECTING PEOPOSED CUEEENCY EEFOEM, 155 



(h) The amount of insurance shall be 
the total otherwise unsecured deposits at 
the time of loss; provided, that when 
such deposits exceed the maximum speci- 
fied for this company the amount of the 
insurance shall be such maximum. 



The insurance covers all otherwise un- 
secured deposits at the time of loss to the 
amount of the maximum. 



PREMIUM COST. 

(i) The average amount of insurance 
shall be the average amount of deposits 
for the calendar year, determined from the 
five published statements required by 
law, excluding, however, deposits other- 
wise secured, and, for the purposes of 
computing premium payments, shall not 
be less than the amount of the capital 
stock or greater than the maximum of 
insurance aforesaid. 

(j) Subject to increase as hereinafter 
provided, the annual premium shall be 
25 cents per $100 on the average amount 
of this insurance. 

(k) WhencA^er the combined capital 
and average surplus, ascertained in the 
manner herein provided for ascertaining 
such average deposits (excluding any 
surplus in excess of the capital stock), 
shall be less than 10 per cent of such 
average deposits, the annual premium 
shall be increased by one-half cent per 
$100 of the average amount of insurance 
for each one-tenth of 1 per cent that such 
combined capital and surplus shall be 
less than 10 per cent of such deposits. 



(l) One-half the premium, estimated 
upon the average amount of insurance 
calculated upon the deposits for the pre- 
ceding calendar year, shall be paid on 
the 1st day of January and one-half on 
the 1st day of July in each year, and the 
deficiency or excess shall be paid or 
repaid on the next 1st day of January. 
In case of a policy being issued during 
the year, the premium shall then be paid 
pro rata, provided that on the policies 
issued upon applications made before 
the licensing of this company, one full 
annual piemium shall be paid in advance. 

(m) There shall be no liability on the 
part of the bank beyond the unpaid por- 
tion of any current year's premium. 

(n) During the continuance of this in- 
surance the deposit of the insurance com- 



The basis upon which premiums are 
to be paid is the average amount of in- 
surance. (Seej.) 

In case of a bank just started, the 
premium should be paid on an amount 
at least equal to the capital stock. 



To illustrate: If a bank having aver- 
age deposits of $500,000 has a combined 
capital and surplus equal to or in excess 
of 10 per cent of the average deposits, the 
annual premium is 25 cents per $100 or 
$1,250 deposited with that bank. To 
roughly equalize the security offered by 
capital stock and surplus, the bank hav- 
ing deposits in excess of 10 times the 
combined capital and surplus is required 
to pay an additional premium. 

In order to preserve the proportion of 
stockholders' liability, surplus in excess 
of the capital stock is not recognized. 

To illustrate: If, instead of the com- 
bined capital and surplus being 10 per 
cent of the $500,000 deposits, the capital 
is $25,000, and the average surplus is 
$15,000, total $40,000, constituting only 
8 per cent of the deposit, there is a 2 per 
cent deficiency. For this deficiency 
there is added to the basis rate of 25 cents 
a charge of one-half cent for each one- 
tenth of 1 per cent of deficiency, which 
is 5 cents for each 1 per cent or 10 cents 
for the 2 per cent deficiency, making the 
rate for this bank 35 cents per $100 of 
deposits, or $1,750. 

(l) As most banks pay dividends semi- 
annually, it is thought best to charge the 
premium semiannually on the preceding 
calendar year's basis, leaving the differ- 
ence between the preceding calendar 
year and the current calendar year to be 
adjusted the 1st day of January. 

On the taking effect of an application, 
the premium for the unexpired portion 
of the six months is to be paid. 

Section 1897s requires that before a 
company shall be fiist licensed, "it shall 
have received in cash one annual premium 
upon each risk outstanding," and not 
less than 200 risks may be undertaken. 

(m) Limits the liability of members to 
one year's premium. 

(n) This is to prevent the funds being 
withdrawn to be deposited or invested in 



156 SUGGESTIONS KESPECTING PROPOSED CURRENCY REFORM. 



pany with said bank shall only be drawn 
iq^on pro rata from all members for such 
amounts as needed to pay ciurent losses 
and expenses, and to provide a working 
fund not exceeding 5 per cent of the 
total current year's premium. 

Notice of any change of ownership in 
the stock of said bank shall be mailed to 
this company on the day of the entry 
thereof on the books of said bank. 

(o) A duplicate of this policy shall be 
kept continually posted by the bank in a 
conspicuous place in that part of its office 
most often frequented by the public. 

(p) After retaining such amount as 
may, in the judgment of the board of di- 
rectors, be necessary and proper for a sur- 
plus, to be used only for the payment of 
losses and the payment of surplus notes 
and interest thereon, the remainder of 
the savings and gains for the calendar 
year shall be apportioned to the members 
m proportion to the amounts of their 
premium contributions. 

(g) This policy shall not be subject to 
cancellation by the company, except by 
and with the consent of the commissioner 
of banking or, in case of a national bank, 
of the Comptroller of Currency. The 
policy may be canceled on a policy anni- 
versary by the insured after a notice in 
writing in a form approved by the com- 
missioner of banking, or Comptroller of 
the Currency in case of a national bank, 
has been filed with the secretary of the 
insurance company/ and posted in the 
bank with the duplicate policy, and a 
copy of such notice mailed to each in- 
sured depositor at least six months prior 
to such policy anniversary. 

(r) A failure to comply with the agree- 
ments and conditions of this policy and 
of the by-laws on the part of the bank 
shall, in addition to other liabilities and 
penalties, subject such bank to a liqui- 
dated penalty of 1 per cent per day upon 
the annual premium to be paid by the 
bank to the insurance company. 

(s) The said bank, in accepting this 
policy and in making application there- 
lor, agrees that the insurance company 
may at any time, at the expense of said 
company, examine into the affairs and 
conditions of said bank and of all persons 
connected therewith or liable to it as 
fully as said bank can authorize the same 
to be done; and for that purpose the said 
company or its examiners shall, during 
banking hours, have access to all cash, 
bills, collaterals, securities, books of ac- 
count, records, reports, documents, and 
papers held by said bank or in the hands 
of any examiner or other person, so far as 
said bank can lawfully grant such au- 
thority. Said bank further agrees to fur- 



any other manner, limiting the working 
fund, which may be kept in one place 
for convenience. 



This requirement is to give insurance 
company notice where change of man- 
agement in an insured bank might seri- 
ously change the policy of the bank to 
the detriment of the insurance company. 

For the information of the public. 



All insurance safeguards require that 
a surplus must be built up; this sur- 
plus should be treated the same as sur- 
plus in a bank and for the specific pur- 
pose of paying losses and the repayment 
of the surplus notes and interest. 

All savings remaining from the current 
year's premiums and interest must be 
repaid in annual dividends to the banks 
in proportion to their annual contribu- 
tions. 

It is assumed that the supervising offi- 
cials will only consent to cancellations 
where all the interests of depositors are 
fully protected. 

Cancellation by the bank is only per- 
mitted after all depositors have been 
given an opportunity to protect them- 
selves by withdrawing deposits if de- 
sired . 



Penalty upon bank for neglect, etc. 



I 



Examination by insurance company to 
be made at its expense, and at such times 
as it may deem desirable. 

Under the present law the information 
and statements furnished to the commis- 
sioner of banking can not be furnished to 
others nor to this company. This law can 
possibly be amended to permit of greater 
cooperation between bank commissioner 
and the insurance company. 

Published statements to be forwarded 
to insurance company. 



i 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 157 

nish to said company, periodically or 
otherwise, all the information requested 
by it and to promptly reply in writing to 
any and all inquiries, and to conform to 
the rules, regulations, and by-laws of said 
company. 

(t) The said bank shall require of every Employees handling bank funds to be 
officer and employee intrusted with the bonded, 
handling of any funds an adequate bond 
in such amount and with such sureties as 
shall be approved by its board of direc- 
tors. 

(v) Except with the consent of this This provision is necessary in order to 
company said bank shall not carry any make pohcies concurrent, same as in fire 
other poHcy covering in whole or in part insurance poUcies. 
the risk insured by this policy. 

(iv) In witness whereof the said com- 
pany has caused these presents to be 
executed by its president and counter- 
signed by its secretarv this day of 

, 19—. 



Lynchburg, Va., July 16, 1913. 
Senator Robert L. Owen, 

Washington, D. C. 

My Dear Senator: Since reaching home, I have read most care- 
fully and with much interest Senate Document No. 117, setting 
forth your statement and analysis of the currency and banking bill. 
I want to say that I think it is one of the clearest and most forceful 
expositions of the measure which I have seen. 

This is a great work which you and your associates are engaged in, 
and in my opinion, if carried to a successful conclusion, will prove the 
greatest step forward in the interest of commerce and business that 
has been enacted by Congress in a generation. 

The Committee of the Chamber of Commerce of the United States, 
of which I was a member, is in thorough harmony with the essentials 
of this legislation and is desirous of doing everything within its 
power to further the same. In this spirit, we have submitted a 
report containing certain suggestions which we believe will materially 
strengthen and improve the measure, and at least rid it of some of 
its criticisms, while detracting nothing from its merits. To these, I 
feel sure that you and your associates will give most careful consid- 
eration, and speaking for myself, I am sure that whatever conclu- 
sions are arrived at, the bill as it finally comes from your committee 
and that of the House will be acceptable and a great blessing to the 
entire business interest of the country. 
Yours, very sincerely, 

John W. Craddock, 

Merchant. 



Denver, Colo., July 17, 1913. 
Senator Robert L. Owen, 

Chairman, Washington, D. G. 

Dear Sir: Will you kindly send to me a printed copy of the bank- 
ing and currency bill. 



158 SUGGESTIONS EESPECTING PEOPOSED CUKKENCY EEFOEM. 

From the synopsis that I have I find the law requires the banks to 
have on hand as reserves a vast amount in excess of all the general 
stock of money in the United States, including the proposed 
$500,000,000 additional to be issued. 

If all State and national banks entered into relations with the 
regional reserve banks the excess of requirements for such banks is, 
approximately, three billions of dollars more than all the banks of 
the United States now control in money. 

And this is only of the present. When the individual deposits 
increase from the present amount of 18,000,000,000 to, say, 
25,000,000,000, as they must soon, and at the rate of about one billion 
per annum, what then ? 

By referring to the last annual report of the Comptroller of the 
Currency it is apparent that all of the banks have at their command 
less than 10 per cent of their deposits, or, say, $1,600,000,000; 47 
per cent of the total money is ''said to be" in the hands of the people, 
which is strange, in these days of poverty with the masses. 

How, then, can the country banks hold 15 per cent and the banks 
of reserve cities hold 25 per cent of reserves to deposits ? How can 
the regional reserve banks hold 33J per cent of all their deposit 
and note liabilities when the money— actual and theoretical— is not 
in existence ? 

And how can the country avoid bank panics in the future any 
more than it has done so in the past ? 

It is conceded by the best of authorities that the gold production 
of the world has reached its apex and from this time forth will re- 
cede in volume. 

How, then, in the absence of bimetalism, can this Government 
maintain specie payments in the face of the enormous demands 
from every commercial nation of gold ? 

Again, we can only maintain, at the most, our money level with 
prices, so that, by increasing volume, we must for the moment raise 
prices beyond the level of Europe, and by this means invite vast 
cargoes of everything that is for consumption, and in pa3rment for the 
same our gold goes out until our prices are on a level with Europe 
and all of the nations of the globe. 

Are we to depend on the ''patriotism" of Wall Street in the future 
to try and save us from perdition ? Are we to see the reserve banks 
"worked" with the same endless chain that was "worked" on Grover 
Cleveland during his incumbency? Surely, we may expect nothing 
else, for "patriotism" does not exist in banking. 

I took occasion to write you a few weeks ago in accordance with 
your general invitation. I gave a few views relative to the banking 
and currency, founded on more than 40 years of experience and study. 

As a patriotic citizen I sincerely trust that this Congress will get 
the country on the right basis, for it is wicked to have so great a part 
of the world suffer as it is now doing, when wa boast of our intelli- 
gence, and think that there can not be a greater amount of brains 
than our Congress possesses. 

We are a country of 3,600,000 square miles. It is folly to try 
and ape Great Britain, France, or Germany, when they have respec- 
tively but 3 to 6^ per cent of the area of the United States to legislate 
for. 



ti 



SUGGESTIONS EESPECTING PROPOSED CUEEENCY EEFOEM. 159 

Trusting that the banking and currency bill as finally passed may 
redound for the great benefit of the United States I beg to remain, 
Very truly, yours, 

C. D. GURLEY. 

References without permission: Senator C. S. Thomas, Senator 
John F. Shafroth, Congressman Geo. J. Kindel. 



In Lieu of the Aldrich Plan, 
the banking problem. 





Debit. 


Credit. 




Date. 


Cash 
funds. 


Credit 
funds. 


Credit 
funds. 


Cash 
funds. 


Balance. 
























































































A suggested ledger account form for the bank. The "potential" 
makes panics impossible. About 93 per cent will normally be credit 
funds —7 per cent cash funds. An occasional footing of cash funds 
only ascertains the two funds that are in one balance. The total 
credit balances in dark ink — overdrafts in red. 

Parity of the two funds is always probable, for, potentially, 93 per 
cent of the present money requirements will be eliminated, owing to 
the exact reversal of the pyramid, that now averages 95 per cent of 
top and but 5 per cent of base, for the financial world. The reversal 
would insure a 95 per cent base. By adding "bimetallism" to the 
proposed new base, the Rock of Gibraltar is a pigmy in strength by 
comparison. 

A FINANCIAL BRIEF. 

No nightmare ever existed in this country equal to bank panics, 
and the fear of such panics. With these made impossible, the United 
States would speedily overcome the strenuous conditions now extant, 
and would pave the way for a permanent and uniform existence. 

The following simple amendment to national and State bank laws 
will forever eliminate bank panics, financial fear, and distress: 

"To authorize banks to discount paper, payable and to be paid in 
'credit funds,' as well as at present, to discount paper, payable in 
'cash' or 'current funds.'" 

In name only, and for the sole purpose of eliminating bank panics, 
this amendment would apparently give two "kinds" of funds or de- 
posits, "credit" and "cash," which may be kept in one account and 
under one balance. 



2736—13- 



-11 



160 SUGGESTIONS KESPECTING PKOPOSED CURKENCY EEFOEM. 

Credit funds would be but the borrowing of the bank's credit for 
deposit, with the names and collaterals demanded by the banker, 
whereby the customer A may transfer by check or draft any part 
or all of such credit to B, and B to C, and so on, in an endless chain 
or circle, as at present done. When legalized by Congress for national 
banks and by legislatures for State banks and trust companies, the 
amendment universally acts as a contract between the banker and 
the customer. 

Cash funds to consist of all forms of current money now accepted 
by banks. 

Checks and drafts calling for credit funds to never be subject to 
payment in cash without the consent of the banker, but always pay- 
able in credit. The words '^credit funds" or ''cash funds" stamped 
on the face of checks would define the ' 'kind " of funds drawn against. 
The bookkeeping would be simple. 

In addition to the above: 

At the request of the customer, but solely at the option of the 
banker, permit the conversion of either funds into the other; charges, 
if any, to be under the supply and demand law for such conversions, 
to be adjusted through the account of the customer. 

The volume of credit funds discounts for a bank to be based on 
the total capital and surplus, and not on the volume of deposits. 
The former are steady, the latter fluctuating, sometimes wildly. 

The maximum volume of credit discounts for a bank is a detail, 
safely fixed by law at several times the combined capital and surplus, 
independent of, and in addition to, the loans for money now per- 
mitted by law. The basis generally adopted by safe bonding and 
surety companies should be a reasonable one. 

The end of the law for credit funds to be through each local clear- 
ing house, either by issuing secured and interest-bearing clearance 
certificates to the creditor banks only, or by such other settlement 
as such clearing house may adopt, the public having nothing what- 
ever to do with these, nor with cash settlements. 

As the law now stands no bank can pay 100 per cent on universal 
urgent demand with but 25 per cent on hand, including its eastern 
deposits, for banks of reserve cities, and but 15 per cent, including its 
eastern deposits, with banks of nonreserve cities and towns. In 1907 
and on prior occasions the country faced conditions when something 
akin to 100 might have been demanded by depositors had not the 
banks been forced to violate the law to prevent receiverships. 

The statistics of clearings show that an average of more than 95 per 
•cent in New York City and about 93 per cent average in volume 
throughout the United States is credit banking in normal times, 
requiring but 5 to 7 per cent of cash to settle balances up to the 
moment of financial fear; but now the law says that the depositor 
may instantly demand cash for his credit balance, and hence bank 
panics. The banker pales and, ruthlessly or otherwise, demands his 
money due from the borrower; the depositor takes fright and demands 
in cash his credit balance. The financial blight is self-evident. Most 
of our woes follow. To perpetuate these is a blot on progression. 

The four principal cities — New York, Chicago, Boston, and Philadel- 
phia — cover from 80 to 87 per cent of the clearings of the United States 
and require less than an average of 7 per cent cash to effect such clear- 
ings. The clearings of other cities of lesser size are accomplished with 



SUGGESTIONS KESPECTING PKOPOSED CUREENCY EEFOEM. 161 

about 7 per cent of cash; then why not legalize these natural financial 
conditions, always existing in normal times, and by this means forever 
eliminate the possibility of bank panics ? Until then bread lines and 
soup kitchens will continue to exist periodically. 

Attention is called to the fact that if the reserves required for all 
banks should average 20 per cent under the laws it would take every 
dollar, actual and theoretical, of legal tender and of credit money — 
not legal — to comply with the laws, leaving no currency whatever 
for the 95,000,000 of people and for the United States Government. 
In other words, the total individual deposits in the United States 
amount to $16,000,000,000. The total of all kinds of money is 
$3,200,000,000, or 20 per cent of the deposits. But much of the esti- 
mated total of cash is beyond the '^ken" of statisticians; so, prac- 
tically, the relation of deposits to "cash in sight" is about as 100 is to 
12. The National Monetary Commission shows that the actual 
reserves for all banks is about 9 per cent of the deposits. On this 
slender thread of ancient stagecoach finance we are striving to rival 
modern Pullman trains. 

From 1890 to 1910 the deposits of the country increased from 5 
billions of dollars to 15 billions. What will become of finance a few 
years hence at the past rate of increase in deposits ? The multiplica- 
tion of money in any form or volume would augment the deposits and 
the loans correspondingly, yet it would still leave the banks with but 
their same legal reserves in percentage, struggling periodically to 
pay 100 with from 9 to 25 per cent on hand, and hence no relative 
change in sight from present conditions, and no relief. On this 
account, solely, the sword, suspended by a thread, perpetually hangs 
over the banker, whether awake or asleep. 

The Aldrich suggested plan contemplates: (1) The issue of $900,- 
000,000 of currency by the national reserve association, resting on 
50 per cent of gold. This gold will be taken permanently from the 
present money of the country, so that the net amount of issue for the 
people will be $450,000,000, or nearly $300,000,000 less than the pres- 
ent national currency outstanding, ''it being the policy of the United 
States to retire as rapidly as possible consistent with the public inter- 
ests bond -secured circulation and to substitute therefor notes of the 
national reserve association." (2) Said association contemplates a 
possible maximum of $1,200,000,000 of issue, and any excess of the 
last-named amount, presumably in extreme emergency, ''shall pay a 
special tax of 5 per cent per annum." If the proposed maximum of 
$1,200,000,000 rests on one-half of its total, or $600,000,000 of gold, 
the gold must be permanently taken from the present stock of money 
of the country. The proposed act ''seems" to contemplate that the 
maximum may rest on one-third, in amount, of gold, by paying a pen- 
alty for the digression. Assuming this to be the construction, provi- 
sion is made for a total possible net of $800,000,000 after withdrawing 
$400,000,000 of gold from the existing stock, on which to rest the 
maximum. ' This is but about $50,000,000 more than the present 
national currency outstandmg, and it terminates the elasticity and 
future relief in our requirements. The enormous commercial expan- 
sion in the years to ever follow can not stand the coming strain. 
Panic emergencies must multiply in the future under the Aldrich 
plan. 



162 SUGGESTIONS EESPECTING PEOPOSED CURRENCY REFORM. 

The Comptroller of the Currency shows about $827,000,000 in- 
crease of deposits in the past year of depression. Ten years hence, 
the deposits must total around $25, 000,000,000; increasing yearly for- 
ever thereafter. 

The maximum net volume of credit money, proposed by the Aldrich 
plan, is but 5 per cent of the present total individual deposits, with 
which to meet panics. If the plan herein offered were in universal 
use in this country the present estimated cash deposits would be but 
one-half only, of the present total amount of money afloat in the 
United States. 

During the administration of President Cleveland, this Government 
was within a few hours of suspension of gold payments. The ^'hold- 
ing up" of the boats containing cargoes of gold, already consigned 
to the other side of the water, and the return of these millions of yel- 
low metal to the United States Treasury, saved the country from 
a dire calamity. Early in the War of the Rebellion suspension of 
specie payments followed and continued for 17 years. Then, United 
States securities and greenbacks declined to 35 cents on the dollar, 
measured in coin. The proposed national reserve association may, 
and it may not, always be able to pay in gold, all of ^^the demand 
liabilities, including the deposits and circulating notes," with the 
amount in hand, which will be but 33 J to 50 per cent of the amount 
required. Time only, and a ^'try out" will answer this. 

Again, even though provision were made for an annual increase 
of the money volume, commensurate with all requirements of the 
present and the future bank deposits, the factors are ever present to 
plague the country, (1) of disturbances in prices of all things of value 
lollowing such increases, (2) the enormous loss to the country arising 
from the vast gold holdings proposed by the reserve association, (3) 
the question of ability to redeem, with one metal only, the present 
outstanding obligations and their future, that, for the commercial 
world already amount to one hundred and sixty billions of dollars 
with an interest charge annually, of about $7,000,000,000, and huge 
new flotations are of perpetual occurrence. 

^SSo onerous have become the great nations' debts, taken in their 
entirety, and so multifarious the actual and imaginary needs of addi- 
tional capital, that little thought is bestowed any more upon measures 
providing for sinking funds and gradual redemption. Maturing issues 
are mostly refunded, particularly those of notable amplitude. Holders 
surrender their old bonds and are given new ones instead, and in 
many instances the new bonds draw the same rate of interest as the 
old. 

^'At the same time, the thousands of great private corporations 
are likewise adding apace to their capitalizations. Every year they 
emit new shares and bonds and notes by the hundreds of millions of 
dollars. It is absolutely certain that they would borrow at least 30 
per cent more than they do if money supplies were more abundant. 
As it is, they do not hesitate to pay 5 and 6 and even 7 per cent for 
capital that in former years cost them only 4 or 4J per cent. It has 
just been reported from New York that one of our opulent railroad 
companies has contracted for a loan at 6 per cent." 

In the face of these threatened gigantic collapses, it is admitted 
by the commission that the present financial plan has effectually and 



SUGGESTIONS RESPECTING PEOPOSED CURRENCY REFORM. 163 

permanently broken down — what of the future contained in the Aldrich 
plan ? 

We pass over the red-tape of ^'organization/' ^'executive," ^' dis- 
counts," and the like, contained in the Aldrich suggestions, believing 
that these complications will receive due attention, and will be 
reduced to simplicity by the Congress, if the plan is ever considered. 

Again, returning to the plan of credit and cash funds, either funds 
must at all times be at a parity with the other, because of the removal 
of the great strain on currency, that insures continuously normal 
conditions and ample money. 

The creation of credit funds would be but the legalizing of every- 
day conditions in normal times, existing in banking, founded on more 
than fifty years of statistical facts. These credit funds can be ^'initi- 
ated" only through ^' loans and discounts." Banks may then loan 
freely and for long periods of time, on real estate and on all other 
sound security. Speedily this method would swell to its normal, 
expanding with the rapid increase of legitimate business created 
largely through this very means of absolute safety from financial 
disturbances. 

This plan might be adopted by a single State, with or without fa- 
vorable Congressional action for national banks. How many fold 
easier then, to meet all financial requirements beyond the border of 
such State or the Nation. 

When the great banks of the United States, having liquid and 
quick assets up to $300,000,000 each, periodically suspend payments 
in violation of law, to save failure, how is it possible for the banks of 
any State with guaranteed deposits, to meet its deposits in cash, on 
sharp demand, especially in an universal panic ? Is it not far better 
to change the law in the simple manner herein proposed and forever 
eliminate the possibility of even temporary suspension? 

If it were legal for the city alone that '^breeds panics" to adopt 
this plan, at least 60 to 67 per cent of the total clearings of the United 
States would be provided for, and panic possibilities would be elimi- 
nated with 5 per cent of cash and 95 per cent of credit funds. Cities 
of smaller population would transact banking on an average of about 
7 per cent of cash and 93 per cent of credit funds — practically and 
potentially the entire elimination of panics, fear, and distress. 

Gov. Shafroth, of Colorado, says : 

"A great revolution as to the rights of man is taking place in each 
of the States of the Union and in all of the nations of the world. Its 
principles were promulgated by that immortal document penned by 
Thomas Jefferson, the Declaration of Independence. 

''It declared that all men are created equal and that governments 
are instituted among men, deriving their just powers from the 'con- 
sent of the governed.' 

''people can ALTER GOVERNMENT. 

"It, moreover, declared that whenever any form of government 
becomes destructive of these ends it is the right of the people to alter 
or abolish it. 

"Our Government was instituted upon the theory that the laws 
should be made by representatives of the people. In time there arose 



164 SUGGESTIONS RESPECTING PROPOSED CUEEENCY EEFOEM. 

in this country something which our Revolutionary fathers did not 
anticipate, namely, the immense power in legislation which the great 
corporate interests are enabled to exercise. 

"As these gigantic interests grew the National Capitol and each of 
the State capitols during the sessions of the legislative bodies were 
swarmed with hired lobbyists and attorneys to influence the repre- 
sentatives. 

" LINCOLN FORESAW DANGER. 

''It seems that the time has nearly arrived, prophesied by Abraham 
Lincoln, when he wrote as follows : 

" 'Yes, we may all congratulate ourselves that this cruel war is 
nearing its close. It has cost a vast amount of treasure and blood. 
The best blood of the flower of American youth has been freely offered 
upon our country's altar that the Nation might live. It has been, 
indeed, a trying hour for the Republic, but I see in the near future a 
crisis approaching that unnerves me and causes me to tremble for the 
safety of my country. 

" 'As a result of the war, corporations have been enthroned and 
an era of corruption in high places will follow, and the money power 
of the country will endeavor to prolong its reign by working upon the 
prejudices of the people until all the wealth is aggregated in a few 
hands and the Repubhc is destroyed. I feel at this moment more 
anxiety for the safety of my country than ever before, even in the 
midst of the war. God grant that my suspicions may prove ground- 
less.' " 

The present method of finance and that of the Aldrich plan are 
ancient devices that in these progressive times are employed to 
plunder mankind. They are an mverted pyramid, resting on a 5 per 
cent base, on top of which, mountain high, is piled 95 per cent of 
credit, payable largely on demand. Is it any wonder that the 
' ' demand " for payment is made around 80 per cent of the time ? And 
hence the topples, the tumbles, and the shambles. 

Finally, if these basic suggestions were enacted into law, the 
Money trust would disband, the people would be released from 
financial bondage, the fears expressed by Lincoln would vanish, be- 
cause the mother of all trusts would be shorn of its power, annual 
currency disturbances would be eliminated arising from the garnering 
and marketing of the crops, special financial privileges would be cast 
aside, the forged chains of money despotism would fall lifeless, coin 
redemption, with bimetallism, could easily be maintained, whether 
in war or in peace ; progressive monetary principles would everywhere 
and with uniformity prevail, big business would lose financial control, 
lower interest rates would become universal, yet the banks should 
give this hearty support because of the opportunity then offered for 
enlarging with safety the volume of discounts, and of insuring them 
the additional facilities and profits desired by every human breast. 
The present requirement of "confidence" would be practically elimi- 
nated, bank panics would become impossible, each community would 
be largely independent of the other in accordance with its wealth, 
financial fear would become a thing of the past; bank liquidation, 
when desired, could be effected through each local clearing house with- 
out a ripple of interest to the public, values would remain steady, and 
the legitimate interests of the country would be boundless. The de- 



SUGGESTIONS EESPECTING PEOPOSED CUKEEi^CY EEFOEM. 165 

vices called '^ money" would then be restored to their primitive uses, 
as the economical means of effecting exchanges and for use as legal 
tender. 

THE CURRENCY PROBLEM. 

In considering the financial horrors that periodically overtake this 
country, we may well ask — right now — ^would the mints be open to 
silver at the old-time ratio on affirmative action by Congress and the 
President of the following: 

1. The reenactment of the coinage law existing immediately prior 
to 1873. 

2. Additionally: A provision for the issue of coin certificates, also 
to be a full legal tender, with which to purchase gold and silver 
bullion for coinage, the coin to be held for the redemption of such 
certificates. 

3. In order to forestall a ^^ flood scare," the withdrawal and can- 
cellation of the present national currency and the greenbacks, 
amounting to, say, $1,100,000,000, but at the discretion of the Secre- 
tary of the Treasury, and in amounts from time to time not exceed- 
ing the outstanding new issues as stated in paragraph 2. Provision 
also for the protection, at par and interest, of the 2 per cent Govern- 
ment bonds. 

4. The act to take effect as soon as, but not until, the world's 
price for silver shall be not less than, say, $1.20 per ounce. 

Horace Greeley said: ^'The way to resume is to resume." 

The books say that light travels 186,000 miles per second. 

The light of this law would instantly thrill the world. 

Every available dollar in this country and in Europe would stam- 
pede for the purchase of silver. 

While bimetallism does not add a dollar to the world's coined 
money volume, it would forever prevent the silver-using nations 
from paying two dollars of debt with one dollar in gold, by conver- 
sion of the gold dollar into two silver dollars; it would forever pre- 
vent the silver-using producer of the earth's products, or the silver- 
using manufacturer, from obtaining a bonus of 100 per cent over 
our producers and manufacturers, through such conversion, which 
has" been the robbery of us since 1873. And yet we wonder, why 
the peril ? 

With bimetallism each paper dollar would then have a coin dollar 
behind it, and at parity with the commercial world. 

What a blessing in disguise, when the country is being held by the • 
throat. 

The law should become operative withm 48 hours of its passage. 

The ^^ power for the absorption of silver" by the greatest Govern- 
ment on earth is so enormous as to be practically limitless. 

But few in Congress would believe the grand results; hence the 
ease in obtainiag affirmative action, when the case is properly 
presented. 

Legislators would readily concede that no harm could follow, in 
any event. 

Contrast this financial plan with the Aldrich plan . This is ^ ^Absolute 
Safety" versus ^^ Probable Suspensions." This is '^The Cause of 
Humanity" versus '^Aerated Commercialism." 

Are the people awake? 



166 SUGGESTIONS KESPECTING PKOPOSED CUKKENCY KEFOEM. 

Boston, Mass., July 17, 1913. 
Hon. Robert L. Owen, 

United States Senate, Washington, D. C. 

Dear Senator Owen: I beg to inclose an article on the banking 

and currency bill taken from the Springfield Republican of July 12. 

I also send herewith a memorandum showing the specific changes 

in the bill which I would respectfully suggest based upon said article. 

Very respectfully, yours, 

C. S. Hamlin, 

Attorney at Law. 

The Bank and Currency Bill. 

SUPPORTS IT IN principle BUT THE FORMER ASSISTANT SECRETARY 

OF THE TREASURY SUGGESTS CERTAIN AMENDMENTS. 

To the Editor of the Repuhlican: 

I am not among those who share in the fear that the administration 
currency bill, so called, will plunge the country into confusion or will 
subject our banking system to political control to the injury of our 
commerdal interests. On the contrary, while I recognize that other 
methods of reform are possible and practicable, and perhaps, in the 
opinion of some financial students even better, yet to my mind the 
proposed bill, with some amendments, will provide a practicable, 
workable plan, safe and sound, even though it may not be the most 
perfect plan which could be devised. 

Appreciating the judicial and dispassionate manner in whith The 
Republican has considered this bill, I venture to suggest certain 
amendments, in harmony with its underlying principles, which seem 
to me to be necessary. Although these suggested amendments may 
appear to indicate serious defects in the present form of the bill, yet 
they are easily susceptible of remedy, leaving the bill substantially 
unchanged and in practicable, workable shape. 

The bill provides, in section 17, that the Federal reserve notes shall 
be redeemable in gold, on demand, at the Treasury or at any reserve 
bank. The Federal reserve banks are required to maintain a reserve 
of 33i per cent in gold or lawful money for the redemption of these 
notes. They also must deposit with the Treasury a fund amounting 
to 5 per cent of the notes they have taken out, such fund to consist 
of gold or lawful money as determined by the Federal Reserve Board. 

The reserve banks may at any time reduce their liability on the 
Federal reserve notes taken out by them by the deposit of lawful 
money with the Federal reserve agent or with the Treasury. Under 
the proposed bill an issue of $500,000,000 of reserve notes is author- 
ized and also a further amount which, at the expiration of 20 years, 
will equal the amount of national bank notes now outstanding — 
approximately $700,000,000. 

Ultimately, therefore, there may be issued about $1,200,000,000 of 
these notes, all redeemable, on demand, in gold either at the Treasury 
or at any of the reserve banks. Apparently, under the proposed bill, 
there is imposed upon each reserve bank the duty of redeeming in 
gold, on demand, not only the reserve notes taken out by that particu- 
lar bank, but, as well, the entire issue of such notes taken out by the 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 167 

other reserve banks. One of the principal defects of the bill, to my 
mind, is that there is no provision requiring the reserve banks to main- 
tain a single dollar of gold in their reserves with which to redeem these 
notes; the requirement of the bill is simply gold or lawful money. 

It is true that the deposit of the 5 per cent fund in the Treasury 
must consist of gold if so ordered by the reserve board, but this 
deposit would be primarily for the redemption of notes presented at 
the Treasury and would not be available to the banks for redemption 
at their own counters. On the other hand, if these notes should be 
presented at the Treasury for redemption in gold, there would appear 
to be no fund now in the Treasury, at least available, for their redemp- 
tion except the 5 per cent deposit, above referred to, and the free 
gold, so called, which might happen to be in the Treasury vaults at 
the time of presentation. Neither of these would provide a safe gold 
reserve for redemption purposes. 

The 5 per cent deposit provided is evidently taken from the present 
law as to national banks, but it should be remembered that the Treas- 
ury is required only to redeem national bank notes in lawful money. 
Neither the Treasury nor the national banks are bound under existing 
law to redeem national bank notes in gold. The Treasury clearly 
could not redeem the reserve notes from the gold reserve of 
$150,000,000, set* apart by the act of March 14, 1900, for this fund is 
made a trust fund by said act for the redemption of the greenbacks 
and the Sherman notes of 1890. The Treasury could not raise gold 
to redeem the reserve notes by issumg gold bonds authorized by said 
act of 1900, for these bonds are strict!}^ limited by said act to the 
purpose of keeping the reserve fund intact at $150,000,000 for the 
redemption of the greenbacks and Sherman notes. 

It may be claimed, with some reason, that the Treasury could buy 
gold with which to redeem these notes under the provision of United 
States Kevised Statutes, section 3700, which authorizes the purchase 
of coin with any of the bonds or notes of the United States authorized 
by law. Clearly, however, the gold bonds authorized by the act of 
1900 could not be issued for this purpose for the reason above referred 
to. The only other resource would be to issue the old 4 per cent or 
the 4^ per cent coin bonds, but it is at least a debatable question 
whether the use of such bonds has not been done away with by the 
gold bonds provided for m said act of 1900. 

In view of this uncertainty, if these Federal reserve notes are to be 
issued as a direct gold obligation of the United States, the power 
should be specifically granted to the Treasury to issue the gold bonds 
provided by the act of 1900 as a means of securing gold with which 
to redeem them. If such power is not specifically granted it is con- 
ceivable that at some future time the attempt, born of financial 
distrust, might be made to draw gold from the Treasury on these notes 
for hoarding or for exportation, as was done through the presentation 
of greenbacks in 1895, which might greatly embarrass the Treasury. 
I would suggest also that the bill be amended so that the Treasury 
may call upon the reserve banks to furnish gold to recoup the Treasury 
for any redemptions it may have made on these notes. As these 
notes are for the benefit of the banks, and are in substance, at least, 
bank notes rather than Government notes, the banks should promptly 
restore to the Government any gold it may have paid out in their 



168 SUGGESTIONS KESPECTING PKOPOSED CUREEITCY REFORM. 

redemption. This latter requirement might save the Treasury from 
the necessity of issuing bonds in any large amount. 

Under the national bank act, when the Treasury redeems national 
bank notes, the banks have to furnish the Treasury with lawful 
money to recoup it. Similarly, when the Treasury redeems these 
proposed Federal reserve notes in gold, the banks which took out the 
notes should be required to pay gold rather than lawful money to 
reimburse the Treasury for the gold paid out by it. 

I fully appreciate that it may be argued, with some force, that, as 
these proposed reserve notes are for the benefit of the banks rather 
than the Treasury, the Treasury should not undertake to redeem 
them in gold but that the proposed bill should be amended so as to 
provide that the Treasury should treat them as it does national bank 
notes under the present law, that is to say, pay them in lawful money. 
Such a change in the bill, however, would necessitate a change in 
the form of the reserve notes, for, clearly, if the notes are to be a 
direct Government obligation, they should be payable by the Govern- 
ment in gold on demand. 

I assume, however, that it has been finally determined that these 
reserve notes are to constitute a direct gold obligation of the Govern- 
ment, and in such event the Government should be given specifically 
ample power to issue bonds to procure gold when necessary for their 
redemption. 

So, also, the bill should be amended so as to require each reserve 
bank to maintain a gold reserve from which to redeem these notes at 
its counter. It may be suggested that no such gold reserve was 
required in the case of the notes proposed to be issued by the national 
reserve association under the so-called Aldrich or monetary commis- 
sion plan, but it should be remembered that the Aldrich notes were 
redeemable in lawful money and not in gold. 

I doubt, also, the advisability of the provision in the proposed 
bill imposing upon each reserve bank the obligation to redeem in 
gold not only the reserve notes it may have taken out, but, as well, 
the notes issued by the other reserve banks. This obligation is 
apparently imposed on all the banks even though some of them may 
not have taken out any reserve notes. 

In this connection it may be interesting to remember that the diffi- 
culty of redeeming the Sherman notes of 1890 in gold was greatly 
enhanced by the provision of law that they could be presented at any 
subtreasury for redemption, although the greenbacks, under another 
law, could be so presented only at New York and San Francisco. 
As a result, the Treasury gold reserve had to be scattered among the 
various subtreasuries, thereby greatly weakening the redemption 
power of the Treasury. 

By a parity of reasoning, I fear that if these proposed Federal 
reserve notes can be presented at any reserve bank for redemption in 
gold it may cause great embarrassment, particularly to the reserve 
banks in the great financial centers, and will necessitate the keeping of 
gold reserves far above any reasonable prescribed amount, thus 
tending to tie up funds and perhaps to minimize in material degree 
the beneficial results to be expected from the proposed bill. 

This clanger can easily be overcome by placing upon each note the 
name of the reserve bank taking it out, and by a provision that the 
notes shall be redeemed only at the Treasury in Washington or at the 



SUGGESTIONS KESPECTING PEOPOSED CUKEENCY EEFOEM. 169 

counters of the bank which took them out. The several banks could 
then easily maintain a gold reserve with which to redeem them with- 
out in the sUghtest degree impairing their loanable funds. The bill 
should also provide specifically that the reserve notes may be reissued, 
w^hen redeemed, similar to the provision of law in the case of the 
greenbacks and the Sherman notes. 

It may be objected that this double liability to redeem in gold both 
at the Treasury and at the counters of the banks, even with the 
amendments suggested above, will make the proposed plan uselessly 
expensive, requiring as it necessarily must gold reserves both at the 
Treasury and in the vaults of ihe respective resei^e banks. This 
objection could be easily met by providing that the reserve banks shall 
redeem the reserve notes they have taken out at their own counters in 
lawful money, leaving intact the obligation of the Treasury in Wash- 
ington to redeem the notes in gold, on demand, when presented there 
for such purpose. 

Such a change could hardly be objected to by those who favored 
the so-called Aldrich monetary plan, for under it, as above pointed 
out, the notes issued were redeemable in lawful money. Nor would 
the security of the reserve notes be impaired by such change in the 
slightest degree, and, in addition, if such a change were made, the 
banks could safely be relieved from the necessity of keeping any 
reserve against their outstanding reserve notes, excepting only the 
5 per cent fund deposited in the Treasury, as is the law in the case of 
the present national-bank notes. 

Much opposition has been manifested to that part of section 12 
empowering the reserve board to require a reserve bank to rediscount 
the paper of any other reserve bank. I do not personally share in 
this opposition, for a reserve bank, if it has available funds, would, 
from ordinary business considerations, be glad to invest in the paper 
of other reserve banks as well as in that of its member banks. I 
would suggest, however, that if this power is to be retained in the bill, 
it would be advisable to couple with it the limitation that the power 
should not be exercised during periods of suspension of reserve 
requirements by the reserve board, as at such times it might be a 
very serious matter to require a reserve bank, against its judgment, 
to loan its funds or its credit to another reserve bank. 

In conclusion, let me add that I am not at all fearful of the danger 
of political influences acting upon the reserve board. Three of its 
members are to be Cabinet officers and the other four will require 
confirmation by the Senate. While under the proposed bill only one 
member needs to be experienced in banking — that is to say, to be an 
expert banker — there is nothing in the bill to prevent the President 
from appointing four bankers on the board should he so desire. I 
firmly believe the country can rest satisfied that the members ap- 
pointed by the President will be men of such high character and 
standing that their determinations will be accepted with confidence 
by the people of the United. 

While naturally, as before stated, some financial students might 
prefer some other kind of bill, I am persuaded that the proposed bill, 
amended as herein suggested and subject to any other amendments 
which may suggest themselves, in harmony, however, with its spirit, 
will furnish a safe, workable plan which will not only give us the 
discount market we so sadly need for our commercial paper, but will 



170 SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

also go far toward placing our banking system upon a safe and sound 
basis, subject only to that control on the part of the public which 
experience has shown to be necessary in the case of other enterprises 
affected with a public interest. 

Charles S. Hamlin. 
Boston, July 7, 1913. 

Specific Amendments Respectfully Suggested to Banking 
AND Currency Bill with Reference to Article of C. S. Ham- 
lin IN Springfield Republican of July 12, 1913. 

1 . Provide that the reserve notes shall be redeemed in gold only on 
demand at the Treasury in Washington. 

(Under present bill the reserve notes are redeemable in gold at 
Washington and at each of the 12 Federal reserve banks.) 

2. The Treasury to be authorized to issue the gold bonds provided 
under the act of March 14, 1900, to provide gold with which to redeem 
these notes if and when necessary. 

3. The 5 per cent fund to be deposited by the reserve banks in the 
Treasury to consist of gold. 

(The bill says gold or lawful money. 

Under present law, the national bank 5 per cent fund consists 
of lawful money. — Act June 20, 1874, sec. 3. 

This 5 per cent, even if exclusively of gold, would not be enough for 
the redemption of these reserve notes by the Treasury. For example, 
this 5 per cent fund does not now suffice for the redemption of national 
bank notes by the Treasury. At one time, in 1912, the Treasury had 
overdrawn $26,000,000 over and above the 5 per cent fund in the 
redemption of national bank notes. — See Treasury Report of 1912, p. 
170.) 

4. Whenever the Treasury redeems any of the reserve notes in gold, 
the law should provide that the banks should furnish gold to the 
Treasury to recoup it. 

(Under the present law, the Treasury redeems national bank notes 
in United States notes. — Act June 20, 1874, sec. 3. 

The banks recoup the Treasury by forwarding United States 
notes — Act June 20, 1874, sec. 3. 

Attorney General McVeagh, on June 30, 1881, gave as his opinion 
that the Treasury can redeem national-bank notes in lawful money. 

Under the present law, national banks can deposit lawful money 
with which to reduce their outstanding circulation. — Act June 20, 1874, 
sec. 4; act July 12, 1882, sec. 9. 

Such deposits are covered into the general cash of the Treasury, 
excepting only the 5 per cent fund, and the Treasury redeems such 
notes out of its general cash. — Act July 14, 1890, sec. 6.) 

5. The act should provide that when the reserve banks reduce their 
liability on outstanding reserve notes by deposits in the Treasury, 
the Treasury should be authorized to call for gold deposits. 

6. The reserve banks should be required to redeem only such 
reserve notes as they have taken out. 

(Originally the national banks had to redeem at their own counters 
and also at the redemption agencies. — Revised Statutes 5195. 

At the present time they are obliged to redeem national-bank notes 
only at their own counter. — Act June 20, 1874, sec. 3. 



SUGGESTIONS KESPECTING PROPOSED CURRENCY REFORM. 171 

The proposed bill calls for redemption of the whole issue at each 
bank.) 

7. The act should provide that the reserve notes shall be redeemed 
by the reserve banks only in lawful money, leaving intact the obli- 
gation of the, Treasury to redeem them in gold. 

(The bill is not clear in this respect. Section 17 provides that the 
reserve notes shall be redeemable in gold on demand at any of the 
reserve banks. — Sec. 17, p. 24, line 13. 

It also provides that these reserve notes may be paid by the reserve 
banks out of their lawful money fund. — Sec. 17, p. 26, line 13. 

Also that the reserve banks may reduce their hability on the out- 
standing reserve notes by the deposit of lawful money. — Sec. 17, p. 
26, line 13. 

Also that there shall be a corresponding reduction of the reserve 
fund of lawful money. — Sec. 17, p. 26, line 16.) 

8. Would suggest for consideration whether the bill should not 
provide that the reserve banks need keep no reserve against the re- 
serve notes which they have taken out, provided, of course, that the 
bill is changed so that they may redeem these reserve notes in lawful 
money. 

(The national banks are not required to maintain any reserve 
against their outstanding notes, excepting, of course, the 5 per cent 
fund deposited with the Treasury. — Act June 20, 1874, sec. 3.) 

9. If the above amendment is accepted, it will be necessary to 
amend section 23 of the bill so that the Federal reserve notes taken 
out by any bank shall not be included in computing the reserve of 
33J per cent of its outstanding demand liabilities which it must 
maintain. 

10. The bill should be amended to provide that when a reserve 
bank receives the reserve notes taken out by another reserve bank 
it shall be obliged to return these notes to the counter of the bank 
which took them out for redemption. 

(This amendment would prevent a reserve bank from drawing 
gold from the Treasury by the presentation of reserve notes of other 
reserve banks.) 

11. The act should specifically provide that the reserve notes au- 
thorized-may be reissued from time to time when and as often as 
redeemed. 

(This is provided for as to United States notes by Revised Statutes, 
sec. 3579, and as to the Sherman silver notes of 1890 by the act of 
July 14, 1890, sec. 2.) 

12. Would suggest that the power given to the Federal reserve 
banks of rediscounting notes, bills, etc., be limited to such notes and 
bills as arise out of commercial transactions and that the power to 
rediscount such notes and bJls arising out of investment transac- 
tions be taken away. 

13. The power of the reserve board in section 12 to order one re- 
serve bank to discount the paper of another bank should be limited 
by the provision that such power shall not be exercised during the 
periods when there has been a suspension of reserve requirements by 
the Federal Reserve Board. 

It is respectfully suggested that the above amendments will in 
no wise detract from the security of these reserve notes, the gold to 
redeem them will be concentrated in the Treasury, and the Treasury 



172 SUGGESTIONS KESPECTING PKOPOSED CURKENCY EEFOEM. 

will have ample power to secure gold from the banks needed for their 
redemption, thus doing away with the necessity of any large bond 
issue by the Treasury. So, also, one reserve bank will be pre- 
vented from presenting the reserve notes taken out by another bank 
at the Treasury for the purpose of drawing gold. , . . 

Finally, if the security for the notes and bills discounted by the 
reserve banks as abo-ve mentioned is limited to commercial transac- 
tions there could not be any inflation caused by the issue of the 
reserve notes, and the danger of gold being expelled from the country 
by their issue, which is actually being done to-day by the national- 
bank notes, will be prevented. 



Washington, D. C, July 19, 1913. 

Hon. Robert L. Owen, 

United States Senate. 

Dear Sir: Replying to your favor of 27th instant I inclose mem- 
orandum and draft of bill covering the suggestions referred to. 

I firmly believe the idea of direct issue of bond-secured emergency 
currency can be worked out successfully. I only ask that you fully 
consider the matter, and if you see nothing m the plan worth util- 
izing, that you return the memorandum to me. 

Yours, truly, ^ _^ ,^^ 

P. W. Wiley. 

[BUI.] 

Be it enacted, etc., That the holder of any bonds of the United 
States may deposit them with any postmaster of the United States, 
who shall receipt for them and forward by registered niail to the 
Treasurv Department at Washington, District of Columbia, which 
department shall return to the depositor of the bonds, through the 
forwarding postmaster, full par value of the bonds m emergency 
currency in denominations of $1, %2, and $5, retaining the bonds as 
collateral until emergency currency has been received Irom their 

owner or his agent for full par value of bonds plus per centum 

tax: Provided, That no amount so issued to any one person shall be 
p;reater than $1,000 or less than $50. 

Sec 2 That for the purposes of this act the Treasurer ol the 
United States is authorized to have prepared and hold m reserve 
emergency notes of denominations of $1, $2, and $5 to the amount 
of$ / 

[Memorandum.] 

Washington, D. C, July 17, 1913. 

An elastic currency is an urgent need. If such a currency can 
be put in circulation," even to a limited extent, independently ot the 
banks, the danger of panics will be less than at present. 

Briefly my plan is to extend to individuals and m small amounts 
the privilege of expanding the currency based on United States 
bonds now the exclusive right of national banks. To this end 1 
would have the Government — . . , 

1 in times of plenty sell 2 per cent bonds m denominations ol 
$50 and $100. Many people of small means will be more interested 
in safety than in high interest rates, especially when— 



SUGGESTIONS KESPECTING PROPOSED CUEEENCY EEFOEM. 173 

2. In times of stringency (see draft of bill) the said bonds could 
be deposited at any post office for transmittal to the Treasury, which 
department would hold them and return to the owner at once by 
registered mail par value in new emergency notes of small denomi- 
nation . 

Observe that this would be an actual addition to the circulation, 
not a mere '^ shifting of money from one pocket to the other." No 
one needs to be told how useful this new money would be in small 
communities at such times, or that it would be better than a loan 
from, a local bank (often difficult to secure), for the loan adds not 
one dollar to the total circulation. 

3. When money is no longer scarce or whenever desired, the bonds 
are to be released on receipt of par in emergency notes plus whatever 
tax is decided upon, interest having meanwhile accrued or been paid 
to the owners. 

This plan would enable individuals to accumulate small sums of 
money with absolute safety when money is plentiful and to turn 
their bonds into currency of small denominations without delay 
whenever there is scarcity of circulating medium, independently of 
banks, thereby furnishing an automatically elastic currency to the 
extent to which the privilege is used; this, too, without parting with 
ownership in the bonds. No one will be injured except perhaps 
national banks, who often refuse to take out national currency suffi- 
cient for local needs. 

The expense of the proposed system would be slight, and the net 
interest paid less tax charge would be a small price to pay for getting 
circulating medium directly into the hands of these who need and 
will properly use it in time of stringency. The above is only an 
outline of the idea, but I beheve the details could be worked out 
very easily. 

Respectfully submitted. P. W. Wiley. 



A PRACTICAL WAY TO ACCOMPLISH BANKING AND CURRENCY 

REFORM. 

[ByG. G. Henry.] 

[An address delivered before the Finance Forum, New York City, Apr. 30, 1913.] 

Daniel Webster began his celebrated speech in reply to Hayne with 
the following words : 

When the mariner has been tossed for many days, in thick weather, and on an 
unknown sea, he naturally avails himself of the first pause in the storm, the earliest 
glance of the sun, to take his latitude, and ascertain how far the elements have driven 
him from his true course. Let us imitate this prudence, and before we float farther 
on the waves of this debate, refer to the point from which we departed, that we may 
at least be able to conjecture where we now are. I ask for the reading of the resolution. 

If we follow the plan so msely recommended and endeavor to take 
our bearings in the tangle of confficting views, opinions, and theories 
on the subject of banking and currency reform, what do we find? 
First, as to the facts in the situation. We find in existence a banking 
and currency system which, although the accidental outgrowth of 



174 SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 

the Civil War, and notwithstanding numerous defects to which allu- 
sion will be made later, has served our needs, broadly speakmg, 
usefully and well. It has broken down occasionally, and resort to 
extra-legal devices has sometimes been necessary, but on the whole 
it has proved well adapted to our business practices and capable ot 
satisfyins: most of our requirements. ^ ^ . i i 

At the other end of the line we find an elaborate plan, known as 
the Aldrich plan, without doubt the most careful and pamstaxmg 
attempt to solve our monetary problems which has yet been presented 
The plan embodies in a comprehensive way the principles ol a sound 
bankmp; system as they have been developed by experience m Euro- 
pean countries, and provides elaborate machmery for carrying out 
its purposes; but it remains, for aU that, an attempt ^ construct 
brand new, a banldng and currency system for a nation of 96,000,000 
people extending over half a continent— truly an experiment on a 

colossal scale. , -, n i • x- £ • -^^ wt^ 

Between these two we find all shades and varieties of opinion We 
note the reluctance of hard-headed, practical business men to depart 
from the known and familiar paths, while admitting that simple 
remedies for known defects would be welcome, and we note the dis- 
agreement of the theorists as to the desn-abihty of dnterent reforms 
and as to the consequences which might be expected to flow from 
them And through it all we see the Treasury Department ol the 
United States engaged in the banking business on a vast scale, but 
on improper and unscientific lines. . . 

If tL loregoing is a correct picture of the situation, it would seem 
as if the solution might he in developing the banking and currency 
fu'nctionVolTe Trefsury Departmeilt, httle by ^ttle ^l-g 1^?^ 
and scientific lines, untU it will come, m course of time, to pertorm 
most of the functions attributed to the national reserve association 
bv the Aldrich plan. When an engine exists to our hand, why at- 
tempt to cxeate^a new piece of machinery ? There appears no reason 
wTy the Treasury Department should not be utiized, except the f e^ar 
Apolitical control and the tacit assumption that the Treasury ought 
W?cally to be taken out of the banking business With this assump- 
tifn thJre is every reason to agree, theoretically, but from a pract cal 
point of view the simplest thing to do is to utihze the Treasuiy 

"^herlTifno warrant for the assumption that the American people 
wiU create a banking and currency system out of whole cloth. Ihere 
I no precedent for luch action. All of ouv institutions social polit- 
ical and economic, have been matters of slow growth. Especially 
in the realm of fi^iance, where the sensitiveness of credit is weU 
understood, the disposition should be, and I thmk will be, to cling 
tenacTously to the old methods, and to "^^^e changes only gradu^^^^^ 
and with avoidance of all sweepmg reform. Only the inexperienceu 
or thTreckless would seek to do otherwise. There is no department 
of business in wlich men should act so cautiously as m bankmg and 
none hi which the results of unnecessary and purely hypothetical 

Ippnslation miffht be so serious. . . i 

le^slation S j^. ^^^^ ^^ j^^.^lo the proposition thus 

indicated Vamely, that the practical way to reform the bankmg and 
Currency systZ is to endow the Treasury Department at once with 




SUGGESTIONS EESPECTING PROPOSED CUERENOY EEEORM. 175 

some of the powers conferred upon the national reserve association 
by the Aldrich plan, adding others little by little, and taking care 
that control of its functions shall be neither exclusively political nor 
exclusively financial, but distributed substantially as in the Aldrich 
plan! And for this purpose I will ask your attention first to the more 
important defects of our present system, and secondly, to the simple 
and gradual steps which might be taken to remedy them through 
enlargement of the banking powers of the Treasury Department. 

There are three chief weaknesses in our present system, one 
relating to the currency and two to the banking system. Of these 
the defect in our currency system is the least important, though it 
frequently appears the most important because the defects of our 
banking system manifest themselves in time of trouble chiefly through 
the failure of the currency to respond to the needs of the moment, and 
the inference is naturally drawn that the currency system is chiefly 
at fault. In reality, however, it is the manifestation rather than 
the cause of our financial difiiculties. 

To an audience of this kind I need not explain that the chief needs 
of a currency system are safety and elasticity. By elasticity is 
meant the ability of a currency system to expand and contract under 
the changing requirements of business, whether seasonal or due to 
the variations of prosperous and hard times. It is easy enough to 
devise a safe but inelastic system, which is the type we have; or it is 
easy enough to devise an elastic but unsafe system, which I believe 
would be the case with so-called asset currency; but it is a difficult 
matter to devise one which is both safe and elastic. We have a 
miscellaneous currency consisting of gold and silver coin and cer- 
tificates, greenbacks, national bank notes and Treasury notes, the 
last-named nearly all retired. Of these the bank notes are the only 
elastic element, and their elasticity being based on the deposit of 
Governm-ent bonds, is very limited. Out of a total currency in 
circulation on April 1, 1913, of $3,339,898,947, the bank notes were 
only $718,411,021. 

Given an inelastic currency system the rate for the use of money 
must always increase as the amount of money work to be performed 
increases, and vice versa, because reserve money must be employed 
instead of bank notes. If a national bank in Minneapolis caUs on 
its Chicago or New York correspondent to send it a number of $1, 
$5, and $10 bills to be used in the farming sections to pay the hands, 
it is necessary for the bank in the reserve city to send reserve money, 
because the bank's notes practically can not be increased. If the 
bank in Chicago or New York is close to its 25 per cent reserve limit, 
this means that it must reduce its loans by four times the amount 
of currency which it forwards to its Minneapolis correspondent, and 
it is obvious that the price of loanable credit, or as we say, the money 
rate, must go up. Now, if the bank in Chicago or New York could 
issue its own bank notes in favor of the Minneapolis bank, reducing 
its deposits by as much as it increased its notes, and keeping its legal 
reserves intact, money could be supplied for payroll purposes without 
adversely influencing the money rate; and some economists in this 
country, deceived by the similarity between bank book credits and 
bank note credits, have advocated the issue of so-caUed asset cur- 
rency. The best opmion appears to be, however, that such a system 

2736—13 12 



176 SUGGESTIONS RESPECTING PEOPOSED CUEEENCY EEFOEM. 

if. applied to banks in general, would not be safe for the reason that 
banks are designed as money-makiag institutions and the self- 
interest of the banks would cause them to overextend their note 
issues beyond the point of safety for the sake of profit. This opiaion 
regards it as an elementary priaciple of note issuiag that it should be 
the function of a bank not primarily designed to make a profit. 

The point therefore to be covered in reform of our currency system 
is to devise some m.eans by which an element of elasticity, which at 
the same time would be safe, can be injected into our financial organi- 
zation, to the end that the loaning rate for money shall not go up and 
down as the amount of money work to be performed increases or 
decreases, i. e., as the demand for the medium, of exchange changes, 
but only in much sm.aller degrees and over longer periods of time, 
as the demand for true capital increases or decreases. To understand 
this point clearly one must keep firmly in mind the distinction between 
currency and capital, to which reference will be made later, but it is 
sufficient for the present to point out the object to be accomplished. 

The defects of our banking system, as I have indicated, are far more 
serious than the defects of our currency system. The difficulty is 
twofold, one relating to the question of reserves and the other to the 
question of rediscounts. I shall not attempt, at this time, to do 
more than indicate the nature of these defects, for the reason that you 
have more than once been addressed on the subject from this platform 
by Mr. Paul Warburg, an acknowledged authority, who has explained 
the nature of the difficulties in minute detail. Nor would I fail to 
say that the cause of monetary reform in this country owes much of 
its initial impetus and of its present progress to the illuminating 
addroeses and pamphlets of Mr. Warburg. 

In what follows on this subject I can not do other than follow the 
lines which he has laid down and shall in places quot^ freely from his 
writings. 

In this country every bank is independent of every other and each 
holds its own reserves against its own deposits. In times of trouble, 
therefore, it is a case of sauve qui pent and each bank is almost 
necessarily a hoarder of cash. We are in the position of a country 
which would endeavor to resist invasion by giving each citizen a 
rifle and telling him to do his best against the enemy, instead of 
organizing a disciplined army to conduct the military operations. In 
the scattering of its reserves our banking system is like a small town 
in which each householder would be provided with a pailful of water 
against the danger of fire instead of concentrating all the water 
available for fire protection in one central reservoir, and providing 
the town with a system of pipes and hydrants by which the whole 
supply could be made immediately available at the point of need. 
Moreover, in case a fire should start in one of the houses of this town 
we may suppose that the two neighbors of the unfortunate victim 
would be prohibited by law from using their supply of water to aid 
him in extingui'^hing his blaze. For that is what our law does, by 
prohibiting the reduction of reserves below 25 per cent of deposits. 

In connection with this point, Mr. Warburg uses an illustration 
which is very apt. He cites the case of a stranger arriving late at 
night at a German town, anxious to be driven to his destination, 
and finding that the one cab which was at the station could not 



SUGGESTIONS EESPECTING PEOPOSED CUEREI^"CY EEPOEM. 177 

convey hini, although nobody else wanted it, because of the law 
which required that at all tunes at least one cab should remain at 
the station. With our system of scattered reserves, and in view of 
the fact that banking principles are none too well understood b}" 
many of the country bankers of this country, through whom the 
larger part of original banking is done, it is probably necessary that 
some legal percentage of reserve should be fixed. But the point I 
wish to emphasize is that the proportion of reserves is nothing like as 
important as the establishing of a S3"stem whereby all the reserves of 
all the banks could be gathered in a central reservoir and used at the 
discretion of the proper authorities in any quarter and in any quantity 
in which they might be required. 

A great deal of misinformation as to the question of reserve exists. 
The real strength of a banking institution is determined not so much 
by the amount of its specie and legal tender reserves as by the pro- 
portion of its total assets which are liquid. A bank with 10 per cent 
in specie in its vaults and 75 per cent of its remainmg assets imme- 
diately available is in a far stronger position than a bank with 25 
per cent in specie reserves and all the rest of its assets slow although 
perfectly good. In times of trouble a depositor is apt to want his 
money, and a banker can not give him somebody else's promissory 
note or a 50-year municipal bond as a substitute for the cash — not if 
he wants to continue in the banking business. 

This brings us to the other defect of our banking s3^stem, which is 
really the keynote of the whole trouble. It relates to the question of 
rediscounts. The crime of our banking system consists in perm.itting, 
in fact requhmg (for no other course is open to the bankers) the 
investment of demand deposits in deferred assets. Speaking gen- 
erally, deposits of all of our banks are subject to immediate withdrawal 
at the wish of the depositors, whereas these deposits are invested by 
banks in various deferred assets such as bonds, notes, and other 
evidences of corporation mdebtedness, having 2 or 3, or perhaps 
50 years to run, in time loans secured by collateral, or in call loans, 
which by common custom are not callable by the bank, but only 
payable by the borrower, or in commercial paper having 60 or 90 
days, 4 months or 6 months to run, discounted by the bank for its 
customers or purchased from note brokers. 

The only real call money and the only real li(][uid funds which any 
bank in this country has outside of its deposits with other banks, 
which usually constitute part of its reserves, consist of call money 
loaned on the New York Stock Exchange. The result is that all 
the important banks from the Atlantic to the Pacific are forced to 
keep a large part of their money floating on the stock exchange, 
and the hasty calling of these loans in a large volume when the 
demand for currency or for banking accommodation from their 
regular customers comes upon them produces the familiar spectacle 
of a terrific fall in stock exchange prices at a time when business 
is good, and the very companies whose securities are suffering may 
be largely increasing their earnings. There being no other safety 
valve, the decline in security prices must go to a point where the 
real investor in this country or Europe will take over the securities 
for investment from the holders on margin at whatever prices they 
elect to pay. 



178 SUGGESTIONS EESPECTING PEOPOSED CURRENCY REFORM. 

In all other important industrial countries conditions are abso- 
lutely different. In England, France, or Germany, for instance, 
it is unheard of for a bank to invest demand deposits in deferred 
assets. Much the larger part of their funds is in commercial and 
financial paper accepted by a bank or banker, usually bearing the 
indorsement of two or three other banking firms through whose 
hands it has passed. This paper commands a ready sale at all 
times in the bill market, because it is only necessary to take the 
paper to the central bank to secure currency against it. In France 
and Germany the banks make direct application to the Bank of 
France or to the Reichsbank for rediscount, while in England appli- 
cation to the Bank of England is usually made by the bill brokers. 
But in each country it is an established principle of banking that 
paper bearing the acceptance and indorsement of banking firms or 
institutions is immediately convertible into cash. The result is that 
an increase in the demand for money spreads itself out over the 
commercial requirements of the entire country instead of being 
concentrated on one single point as on our stock exchange, and the 
rise or fall in the rate of interest is therefore very gradual. 

To indicate what a vicious banking principle it is to invest demand 
deposits in assets which are not immediately realizable, and to show 
the extreme reluctance of European bankers to indulge in such prac- 
tice, it may be stated that in Europe time loans of even 60 or 90 
days on the best securities as collateral command a price consider- 
ably higher than the rate at which a bill for 60 or 90 days will be 
discounted, the difference being that in the former case the bank's 
money is not available until the loan matures, whereas in the latter 
case the bill can instantly be converted into cash. 

It is one of the most surprising things that America, which has 
led the world in so many of the steps by which civilization has 
advanced, should be doing its banking business along lines which 
had been reached in Europe in the day of the Medicis and in Asia 
probably centuries earlier. Most of the paper taken by American 
banks still consists of simple promissory notes which rest only on 
the credit of the merchant who makes the notes and which are 
kept until maturity by the bank or corporation which discounts 
them.. The consequence is that American bank capital invested in 
commercial paper is virtually immobilized. In Europe, on the other 
hand, there are scores of banks and private banking firms which 
give their three months' acceptance for the commercial requirements 
of trade or which make it their specific business to indorse commer- 
cial bills. A commercial borrower in England, France, or Germany 
will either sell his bank or broker his own three months' bill, drawn 
on a banking firm willing to give him this credit, or he will sell 
the bills drawn by him on his customers in payment for goods sold 
to them, which bills will be subsequently passed on with the indorse- 
ment of the banker. 

We need a system of the same kind in America, and the absence 
of such a financial organization is the chief defect of our banking 
system. ^To a limited extent a certain amount of rediscounting is 
now done by the larger banks in the central reserve cities for their 
out-of-town correspondents, but it can never be a factor of much 
importance in our banking system until it becomes the foundation 



SUGGESTIONS RESPECTING PKOPOSED CUEKENCY EEFOEM. 179 

upon which our whole financial edifice is erected. This will be a 
matter of slow growth, as it involves a fundamental change in our 
banking practices, but the movement will never get a good start 
until there exists some sort of central organization ready and able 
at all times to rediscount the legitimate paper of the general banks. 

If the chief defects of our currency and banking system have been 
correctly stated, we require the injection of an elastic element into 
our currency system, while retaining its safety; we require the estab- 
lishment of a central reservoir to hold the reserves of the country, 
and we require an organization for rediscounting, so that a bill 
market along European lines may be gradually built up and the 
banks freed from the necessity of investing demand deposits in 
deferred assets, which is the greatest element of weakness in our 
banking system. 

To accomplish these purposes the following steps, practically all 
taken from the Aldrich plan, are suggested : 

1. Repeal the so-called Aldrich- Vreeland amendment to the 
national- bank act, providing for emergency currency, which expires 
by limitation next year. 

2. Amend the national-bank act to prohibit note issues by national 
banks, provide for the retirement of outstanding notes, and arrange 
for the exchange of the consolidated twos for threes without the 
circulation privilege, or three-and-a-half s if necessary; grant the 
national banks the right to accept drafts or bills of exchange drawn 
upon them, properly secured, and arising out of commercial trans- 
actions, the amount of such acceptances not to exceed one-half the 
capital and surplus of the accepting banks. 

3. Take some division of the Treasury Department, probably the 
Division of Loans and Currency, enlarge its powers and scope, and 
provide for its supervision (under the Secretary of the Treasury) by 
an advisory board, made up as the board of governors of the national 
reserve association is selected in the Aldrich plan. 

4. Endow the Division of Loans and Currency with the following 
powers : 

(a) To issue circulating notes which shall be the direct obligation 
of the United States, payable on demand. 

(b) To accept deposits from national banks only, upon which it 
will allow no interest, such deposits to count as part of the banks' 
reserve. 

(c) To rediscount for and with the indorsement of any bank having 
a deposit with it, notes and bills of exchange arising out of com- 
mercial transactions which have a maturity of not more than 28 
days and which were drawn at least 30 days prior to the date of 
rediscount, the amount rediscounted not to exceed the capital of the 
bank for which the rediscounts are made, nor to exceed four times the 
average amount of the bank's deposits with the division. 

(d) To rediscount, as above, bills having more than 28 days but 
not exceeding 90 days to run, provided the bills are indorsed or 
accepted by another national bank which is a member of the clearing 
house of a central reserve city. 

(e) To purchase in the open market the acceptances of national 
banks which must be of the character known as prime bills, such 
acceptances not to have more than 90 days to run, and to bear the 



180 SUGGESTIONS EESPECTING PEOPOSED CUEEENCY EEFOEM. 

indorsement of the bank selling the same, which must be other than 
the acceptor. 

(/) To deal in gold coin and bullion. 

(g) To deal in foreign exchange having not more than 90 days to 
run, which must be prime, double name paper. 

(Ji) To maintain bank accounts and establish agencies in foreign 
countries. 

5. Impose upon the division the following duties and limitations: 

(a) That minimum rates of discount shall be established weekly, 
to be uniform throughout the United States. 

(h) That all demand liabilities of the division, including deposits 
and circulating notes, shall be covered to the extent of 50 per cent 
by a reserve of gold, either coin or bullion, or certificates, except that 
$150,000,000 shall be deemed sufficient cover for the outstanding 
greenbacks; providing, however, that whenever in the opinion of the 
advisory board the public interests so require, the division may con- 
tinue to issue notes until the reserve falls to 33J per cent of outstand- 
ing liabilities, after which no additional notes can be issued. 

(c) That all liabilities shall be fully covered by gold reserve or by 
notes or bills, or bills of exchange arising out of commercial trans- 
actions, as above defined, except that $150,000,000 gold shall be 
deemed sufficient to cover outstanding greenbacks. 

(d) That no circulating notes in excess of $900,000,000 which are 
not covered by an equal amount of gold reserve shall be issued unless 
in the opinion of the advisory board the public interests so require, 
and that no notes in excess of $1,200,000,000, unless fully covered, shall 
be issued under any circumstances. 

The above outline is more or less tentative and might be changed in 
many particulars without interfering with the main principles. For 
the time being it might be better to confine rediscounts to paper hav- 
ing less than 28 days to run and omit the power conferred by para- 
graph (d). As experience develops it would probably be thought best 
to replace the greenbacks with circulating notes, and it might be found 
advisable to provide some means of issuing circulating notes against 
deposit of securities under guarded restrictions and subject to a 
higher rate of discount, as provided in the Aldrich plan. In order to 
encourage the banks to keep deposits with the division, it might be 
necessary to pay 2 per cent interest on deposits or to repeal that pro- 
vision of the national-bank act which allows country banks to count 
deposits with banks in reserve cities as part of their reserve. 

The composition of the advisory board should receive careful 
attention, as it would have no direct power, except that its consent 
would be necessary to exceed the regular limits mentioned above, and 
it would have to rely upon the character, standing, and experience 
of its members to influence the Secretary of the Treasury. Never- 
theless, it is not thought that any danger would exist on that score, 
and of the two it is held much safer to vest the real power in a political 
official, tempered as indicated, than to leave it remotely possible that 
control of the division should fall into the hands of business men with 
possibly selfish ends in view. 

As far as profits are concerned, the operation of the division should 
result in considerable revenue, out of which would have to be absorbed 
the added interest charge upon the Government bonds, but the 



SUGGESTIONS EESPECTING PROPOSED CUEEENCY EEFOEM. 181 

primary object would not be to make money and any balance could 
be iised to reduce the national debt. 

In conclusion, a word of caution should be uttered against expecting 
too much from this or from any plan. Panics can not be prevented 
by legislation nor can capital be created. It would be much better 
to make no change in our present system than to encourage the 
impression that by legislation it is to be made easy to borrow money^ 
which conld only lead to a period of overextension and a bad smash. 
There is far too much confusion at present between currency and capi- 
tal. Broadly speaking, all the capital available for investment each 
year, neglecting capital obtained from abroad, is the difference 
between the annual production and the annual consumption of the 
country. If industrial opportunities are many and varied, there will 
be competition among those desiring to secure this annual saving 
in order to devote it to productive uses, and rates will be high. To 
express it scientifically, capital limits industry; and there is no 
greater mistake than to suppose that because a man can ofi^er good 
security he is entitled to borrow capital. As well say that because 
a man has a cup he is entitled to dip water out of a basin. If there 
are more who want to dip than there is water to go around, some 
cups will go empty. Legislation can not change these conditions. 
Legislation, by providing elasticity, can prevent a demand for cur- 
rency, as such, from increasing the price of capital, but it can not 
prevent a strain on capital due to an overdemand. When the strain 
comes, legislation, by providing for rediscounts and centralized 
reserves, can do much to prevent an utter breakdown of credit, hut 
it can not change fundamental financial conditions. 

It would be much, however, if these reforms coidd be accomplished, 
and it is to be hoped that some efi^ort toward remedial legislation 
will be made this year. 



NATIONAL CUERENCY PLAN SUGGESTED TO PREVENT OR AVERT 

FINANCIAL STRINGENCY. 

That the Secretary of the Treasury be authorized to issue treasury 
notes to the amount of $460,000,000. to be called emergency notes, 
in denominations of $500 and $1,000. Each note to be dated on 
the first day of the month within which it is issued and payable 
within three years from such date. 

Said notes to be issued only to clearing houses, to be incorporated 
and conducted under such regulations as may be provided by act of 
Congress, and to be located at the capital cities of the various States 
and Territories and the District of Columbia. The notes to beai the 
names of the respective State or Territory to whose clearing house 
they ma}^ be issued. 

The amount issued to a particular clearing house to be propor- 
tioned to population of the State or Territory within which it is 
located: that is to say, the amount issued to any clearing house 
shall not exceed a sum proportioned to the whole sum of $460,000,000 
as the population of the State or Territory is to the whole population 
of the country, viz: 92,000,000. This would make the amount of 



182 SUGGESTIONS RESPECTING PROPOSED CUEEENCY EEFOEM. 

such notes which might be issued to the various clearing houses as 
follows : 



Maine 

New Hampshire 

Vermont 

Massachusetts 

Rhode Island 

Connecticut 

New York 

New Jersey 

Pennsylvania 

Delaware 

Maryland 

District of Columbia 

Virginia 

West Virgiaia 

North Carolina 

South Carolina 

Georgia 

Florida 

Alabama 

Mississippi 

Louisiana 

Texas 

Arkansas 

Oklahoma 

Tennessee 

Kentucky 



Popula- 
tion. 



750, 000 
450, 000 
375, 000 
250,000 
550,000 
000, 000 
000, 000 
500, 000 
500, 000 
250, 000 
250, 000 
500, 000 
000,000 
250, 000 
250, 000 
500, 000 
500, 000 
750, 000 
000, 000 
750,000 
500, 000 
000, 000 
500, 000 
500, 000 
000, 000 
250, 000 



Amount. 



$3, 750, 000 
2,250,000 
1,875,000 

16, 250, 000 
2, 750, 000 
5, 000, 000 

45, 000, 000 

12, 500, 000 

37, 500, 000 
1, 250, 000 
6,250,000 
2,500,000 

10, 000, 000 
6,250,000 

11,250,000 
7, 500, 000 

12,500,000 
3, 750, 000 

10, 000, 000 
8, 750, 000 
7,500,000 

20, 000, 000 
7, 500, 000 
7,500,000 

10,000,000 

11,250,000 



Ohio 

Indiana 

Illinois 

Michigan 

Wisconsin 

Minnesota 

Iowa 

Missouri 

North Dakota. 
South Dakota. 

Nebraska 

Kansas 

Montana 

Wj'oming 

Colorado 

Utah 

Idaho 

Nevada 

California 

Oregon 

Washington . . . 

Arizona 

New Mexico... 



Total. 



Popula- 
tion. 



750, 000 
750,000 
500,000 
750, 000 
500, 000 
000, 000 
250, 000 
250,000 
750,000 
750,000 
250, 000 
750, 000 
500, 000 
150, 000 
000,000 
500,000 
500, 000 
100, 000 
250, 000 
750, 000 
125, 000 
250, 000 
500, 000 



Amount. 



$23, 750, 000 

13, 750, 000 

27,500,000 

13,750,000 

12,500,000 

10,000,00(t 

11,250,000 

16,250,000 

3,750,000 

3, 750, 000 

6,250,000 

8, 750, 000 

2,500,000 

750, 000 

5,000,000 

2, 500, 000 

2, 500, 000 

500, 000 

11,250,000 

3, 750, 000 

5, 025, 000 

1,250,000 

2, 500, 000 



460, 000, 000 



Said notes to be issued upon the security of United States bonds, 
or the bonds of any State, county, or municipality, issued under 
and in accordance with statutory authority, deposited in the Treasury 
of the United States; provided the market value of such securities is 
not less than par. The amount issued upon any such security not 
to exceed 75 per cent of the par value thereof. 

The notes to be receivable at the United States Treasury in release 
of the securities deposited as above stated, at the following valuation, 
viz, for each month which shall have elapsed since the date of the 
issue of any note, one-half of 1 per cent of its face value shall be 
deducted therefrom; that is to say, upon a note for $1,000 the holder 
shall, after the exphation of one month from date of issue, be allowed 
a credit of $995 toward the redemption of his pledged bonds; after 
the expiration of two months, $990, the value being reduced at the 
rate of one-half of 1 per cent for each month which shall have elapsed 
since the date of its issue. The following table shows the value of a 
$1,000 note on the first day of each month after the date of issue until 
full maturity, to wit: 



1 month ?;995 

2 months 990 

3 months 985 

4 months 980 

5 months 975 

6 mo- iths 970 

7 months 965 

8 months 900 

9 months 955 

10 months 950 

11 months 945 

12 months 940 

13 months 935 

14 months 930 



15 months $925 

16 months 920 

17 months 915 

18 months 910 

19 months 900 

20 months 895 

21 months 890 

22 months 885 

23 months..... 880 

24 months 875 

25 months 870 

26 months 865 

27 months. . . -. 860 

28 months 855 



SUGGESTIONS EESPECTING PEOPOSED CUKEENCY EEFOEM. 183 



29 months $850 

30 months 845 

31 months 840 

32 months 835 



33 months 

34 months 825 

35 months 820 



It leing the intention that the Government shall receiv^e interest 
at the rate of 6 per cent per annum on all of the said outstanding 
notes. A schedule similar to the above to be placed on the back of 
each note. 

In the actual operation of this plan it is apparent that the notes 
provided for would not pass into general circulation, but should be 
available for the use of banks and trust companies to enable them to 
replace their reserve currency with such notes and, as members of a 
clearing house, for exchange in the daily settlements, thereby releasing 
their currency for the use of their customers, and causing an inflation 
of money for the relief of trade as occasion requires. 

The advantages of this plan are: 

1. Its small cost to the Government, as the revenue provided 
for would more than meet the expense. 

2. Equal distribution of the notes over the whole country. 

3. The impossibility of the notes accumulating or being held in 
any one locality, or being controlled in any particular business center. 

4. The provision for the payment of interest, in the manner indi- 
cated, on all outstanding notes, insures their speedy return to the 
Treasury as soon as the dropping of the rate of interest in the localities 
in w^hich they may be held shall make it unprofitable for banks to pay 
the rate of 6 per cent per annum for their use. 

5. The facility with which a supply of money can be provided in 
any locality where the need therefor may arise. 

6. The authorizing of the purchase by banks of State, county, and 
municipal bonds, which may be taken and used through State clearing 
houses as security for loans from the Treasur}^ of the United States, 



thus creating a new market for such securities. 



W. J. Young. 



BRIEF ON MONETARY REFORM. 



Gentlemen: The extortion practiced upon the people of the 
United States for the last 50 years by a money monopoly, or, rather, 
by a monopoly of money, currency, and credit; the incidental con- 
tribution of several billions of dollars^ worth of the products of the 
wealth producers of the United States in that period to satisfy the 
dividends on national-bank stock that has yielded nothing to the 
stock of necessaries, comforts, or luxuries of the people of this country 
and only absorbed what the toilers had produced by their sweat and 
brawn; and the consequent pinching poverty and incredible misery 
among the more unfortunate of all classes, especially among the labor- 
ers, join, in behalf of the people of the United States, the sufferers, 
in the inquiry '^ Why renew or continue such a ruinous scheme V 

It is proposed, however, to inaugurate a vast '^credit-currency" 
scheme, in naive admission that the plan pursued for 50 years, on the 
advice of the same 'interests" that now seek to direct our monetary 
affairs is a failure. What is the motive for this proposed indefinite 
extension of legalized credit in favor of the fabulously rich creditor class 



184 SUGGESTIONS KESPECTIKG PKOPOSED CUEEENCY EEFOEM. 

at the direful expense of the suffering debtor class, the toilers and wealth 
producers ? The Hon. Edward B. Vreeland, M. C, in a speech in Con- 
gress, on February 6, A. D. 1912 (Cong. Rec, 62d Cong., 2d sess., 
p. 2436), said that the banks of the United States, including State 
banks, owed on deposits the sum of $16,000,000,000. Some Senator 
is reported to have said in the Senate that, according to Moody, in 
A. D. 1904, the total capitalization of all the industrial and railroad 
monopolies was conservatively put at $20,000,000,000 and that by 
A. D. 1908 it had increased $11,000,000,000, and that this did not 
include financial combinations, banks, trust and insurance compa- 
nies. It is safe to say that those securities amount to-day to not less 
than $44,000,000,000, and this, added to the deposit debt of the 
banks, makes a sum of $60,000,000,000. Again, it is safe to say that 
the capitalization of those other named institutions amounts to the 
comparatively meager sum of $15,000,000,000, totaling $75,000,- 
000,000; subtracting the amount of the national-bank circulation, say 
$725,000,000, from the sum total of all the real money in the country, 
legal tender, there will remain for other purposes of real legal-tender 
money, about $1,850,000,000. This will pay, in cash, on the 
$75,000,000,000, 0.02466+ per cent. A millionaire is then really 
worth, in cash, only $24,660 + , and a man thinking he is worth 
$100,000,000 is worth, in cash, only $2,466,666 + . No one enjoys 
the reduction of their reputed wealth, much less the diminution of 
their opportunities of receiving interest and dividends on an unag- 
inary portion of it. Hinc lacrymas has videmus. 

But the toilers, wage earners, workers, producers, and wealth 
makers have had their incomes reduced from what it otherwise 
would have been by the 10 per cent dividends on national-bank stock 
four times as fast as they were realized, and more than four times as 
fast by the returns on special-privilege enterprises and on law-made 
monopolies and on stock-jobbing transactions. In round numbers 
there is of national- bank stock $1,100,000,000 realizing not less 
on an average than 10 per cent, and this is conservative. The net 
gain of enterprises outside of those having special privileges to 
charge more than an average profit is not more than 2^ per cent per 
year; that is, it takes the world 40 years to double its w^ealth. It 
inevitably follows that this dividend privilege of the national banks, 
or of any other like institution to be established, compels the wealth 
producers to surrender each year 2§ per cent on $4,400,000,000 for 
the purpose of paying the dividend on $1,100,000,000 for that year. 
The gross value of all the products of the United States will not 
average in the last few years more than $33,000,000,000; in 7| years 
they will have surrendered the 2^ per cent on $33,000,000,000 esti- 
mated as the whole crop for that year, so that by any scheme that 
allows currency in the hands of private owners to be issued by them 
is sure in a certain cycle of years to absorb the whole aggregation 
and accumulations of necessaries, comforts, and luxuries produced 
by all others than themselves and to which they contributed nothing 
at aU. The general American public can not endure this strain 
and must have relief. No ^ interest" can have any good claim on 
this Government for a privilege so costly to all others. 

But this is all destructive and is of small moment unless some 
positive constructive remedy can be proposed; and the only remedy 



SUGGESTIONS RESPECTING PKOPOSED CUREENCY EEFOEM. 185 

is radical, but it is the only remedy that will afford full and complete 
rehef permanently. 

The issue of redeemable notes of the Government noninterest 
bearing would reheve to some extent, but their redemption would 
burden the people unnecessarily, as real money is not, and from 
the very nature of it can not be, redeemed. Your valuable time 
will not be consumed by any argument that value is not necessary 
to the most ample function of money, nor that its essential founda- 
tion is the fiat of the issuing Government. I hold briefs on the 
affirmative of both these propositions and the conclusions are incon- 
trovertible — irredeemable certificates of value never to be redeemed 
except to replace a worn-out one can be issued that will effectu- 
ate the exchange of commodities just as easily as if composed of 
25 yV grains of radium for 100 cents, the only requisites being 
the fiat of the Government that all should accept it at the value 
marked on its face and as provided in the law of its creation, together 
with a further provision that anyone calling in question its solvency 
should be guilty of a felony and punished accordingly; and there 
would be nothing tyrannical about this provision, as it is not con- 
sidered tyrannical to punish the wanton destruction of the '^flag 
of our Union, " although the wanton destruction of all the said flags 
in the country would not cause a single infant a single pang, a mother 
a single sigh, or a father a moment's solicitude. How much more 
seduously, then, should the Government support the worth and 
integrity of its paper currency — evidence of its proper beneficence 
for its wards, its citizens, and the indicia of its dignity and material 
wealth and the discredit of which, the wanton destruction of its 
dignity and prestige, would cause thousands of infants to starve, 
their mothers to weep, and their fathers to commit suicide; but 
while this currency would represent no value while in the custody of 
the Government before issue, the moment it was dehvered to a 
horny-handed toiler for a day's work it would represent the highest 
value known in this world. Money is and should be only repre- 
sentative. One hundred billions of improvements could and should 
be accomplished in this country that are not inaugurated for the 
simple reason that they would entail too great an interest charge, and 
a final redemption as money is not barter and trade under an improved 
form, but a representative of value, and can not be redeemed, as the 
only redemption would be in money. It can not be too strongly 
asserted that the only function of money is to effectuate exchanges 
and measure values; for instance, the levees on the Mississippi River 
could thus be built with no consequent burden of interest or redemp- 
tion resting on the people. 

It is a safe estimate to say that the average amount of national- 
bank stock for the last 50 years has been not less than $360,000,000; 
10 per cent on this sum is $36,000,000, and in 50 years the amount 
of $1,800,000,000 in dividends has accrued; this almost equals the 
whole of the legal-tender monev there is in the country outside of that 
necessary to redeem the national-bank circulation; but the banks 
realize more than 10 per cent, and it is safe to say that they actually 
own all the money in the country; therefore no one can get 1 cent 
without th^ir permission. Substracting the $1,800,000,000 from 
the sixteen billions of deposits, we have $14,200,000,000 of deposits. 



186 SUGGESTIONS KESPECTING PROPOSED CUERENCY REFORM. 

that must be secured by collateral in the banks; when the attempt. 
is made to pay this latter sum in cash it will cause a strenuous effort 
to realize the cash on that amount of collateral held by the banks, 
^nd such a wholesale liquidation of debts will greatly depreciate 
values and very probably exhaust all the chattels of the debtor 
class and leave a residue to attack the land and make serfs, peons, 
and slaves of the former owners. Again, this is destructive, but the 
suggested improvements would so stimulate the price of labor as 
would enable the small debtors to pay their debts in a short time, and 
if their creditors would not wait, let them, with the debtor hopelessly 
involved, escape through the beneficent meshes of the bankrupt 
court. There is no doubt that this remedy would enhance prices 
among the real wealth producers, and that is where the remedy is 
most inexorably needed, but the proposed '^credit-currency" scheme 
is rigged to furnish the currency only to a person who owns a nego- 
tiable note; laborers, workers, common men, and real wealth pro- 
ducers do not own any kind of notes, and therefore will enjoy only 
the privilege, as always, of paying the note that some other man 
-owns against them, until they finally become so poor that no man 
will take their note, and then they will be peons or slaves. There 
is nothing for the poor man, who is the one that needs help, in the 
''credit-currency" scheme; it is but putting off the evil day, laying 
up wrath against the day of vengeance, and it will return in not 
more than 20 years. 

Such issues, however, will not correct the whole anomalous situa- 
tion and conditions. To make complete success, all unearned incre- 
ment, that which enjoys and produces nothing, or enjoys more than 
it produces, no matter from what source, must be annihilated, as 
that is what is the cause of the dis jointure of economic and indus- 
trial conditions and relations. 

It is not important that the so-called ''leading men," and "promi- 
nent men," or "business men" do not only not sympathize with 
these principles, but may, honestly or disingeniously, oppose them; 
nor does it signify that a diapason chorus of all the people in its 
behalf is not heard, and is not likely to be heard. Even one only 
of the humble citizens of the United States, presenting a plea founded 
on justice and right, is the representative of the whole people. 

Respectfully submitted. 

Chari.es W. Baughman. 

Hon. R. L. Ow^EX, Esq , 

United States Senator, Washingtoii, D. C, 

Senate Banking and Currency Committee. 



Some Encouraging Features of the Emergency Law and how 

THEY MAY BE MaDE AVAILABLE IN IMPROVING THE CURRENCY 

System. 

[By William C. Comwell, author of "Sound money monographs," "The currency and banking law of 

Canada," "The Bache weekly review," etc.] 

The framers of the emergency cmTency law entered upon their 
task under political pressure to do something for the people. It was 
at first purely a political desire. The people had experienced a dis- 
aster — the panic of 1907. The party in power was held by a great 



SUGGESTIONS EESPECTING PKOPOSED CUEEEXCY REFOEM. 18 T 

number of people responsible for that disaster, which was attributed 
to Roosevelt's attacks upon the credit of the Nation's enterprises, and 
the acute situation which developed was made possible because the 
Republican banking system was inadequate to meet and avert any 
kind of a panic, even one which was without real reason. 

The framers of the act looked upon the incidents of the disaster with 
unpracticed and inexpert eyes. They saw blindly that a deficiency 
somewhere in the supply of money entered in to make it necessary for 
banks to suspend payment at the moment of greatest excitement. 
Their idea of a remedy was that if a reservoir of new money could be 
established which could be drawn upon in times of danger the fire 
could be put out in the future by overwhelming it with water. To 
make this reservoir unavailable in ordinary tim.es, they placed a pro- 
hibitive tax upon its use except when the exigency would make the 
tax negligible; in other words, to carry out the analogy of the fire to- 
make the water available only when the fire danger was so great that 
it would not make any difference what water cost to put it out, pro- 
vided only enough water could be obtained. 

Starting in Congress with this kind of a proposition, they were met 
at every point by the ^'interests " of the different parts of the country. 
At first bonds only were made the basis of the new issues. The West 
rose with a growl; the West had no bonds. The East owned the 
bonds. This was a measure, the West claimed, to further the inter- 
ests of the East; to enable it to exploit underwritings and make 
unwarranted prices for bonds, which the East only was in posses- 
sion of. 

Concilia torily — a long word, but eminently a political one — the 
West was allowed to include commercial paper m the collateral nec- 
essary as a basis for the new currency. The West, at least, had or 
could make plenty of that. 

And so this great economic question was taken up and footballed 
back and forth between politics and '^interests," and finally the 
emergency currency law was evolved and enacted. That out of such 
a measure any good could come seemed impossible; but it is a fact 
that with drastic modifications, changes, and additions this bold sally 
of politics in econoraics possesses some salient bases, out of which can 
be evolved a stable system of currency for the United States. 

Further than this, a great accompanying benefit was the provision 
by the law for a National Monetary Commission, which was immedi- 
ately appointed and which took up at once the work of personal inves- 
tigation of the banking systems in other countries. This commission 
has become one of the best-informed bodies on its respective subject 
which has ever been appointed. The literature which it is issuing from 
time to time is of a most valuable character and is proving efficient in 
educating the thinking part of the community on this paramount sub- 
ject. Politically the committee now stands as a strong power, ready 
to assist in the work of reform whenever executive initiation is given. 

FIRST REAL ACTION IN HALF A CENTURY. 

A country which for 50 years has been saddled with a crazy and 
dangerous banking and currency system without even remote eco- 
nomic quality — no change in which has been made, notwithstanding 
the persistent entreaties, protestations, and warnings of the wiser 



188 SUGGESTIONS RESPECTING PEOPOSED CUREENCY EEFOEM. 

l)ankers and economists of the country during all that time — may 
well be excused for taking heart at the smallest discovery of constiuc- 
tive trend towaid something better. 

IMPORTANCE OF THE NATIONAL CURRENCY ASSOCIATIONS. 

It is only in two directions that the emergency-currency act offers 
a beginning of solution. One of these is in the actual establishment 
of national currency associations. These associations are destined to 
be the anchor holds of a new system, and their establishment is of the 
greatest importance in working out the problem, as will be shown 
later. They are or will be little oases of power and good judgment, 
scattered everywhere throughout the country, mobilizing the con- 
glomerate and diversified army of thousands of banks in the United - 
States. It should be remembered that these associations must be 
organized by not less than 10 banks, with an aggregate capital and 
surplus of not less than $5,000,000, and that the members are jointly 
and severally responsible for the operations of the association to 
which they belong. Here is a twisting together of the weak strands 
of our banking system into a multitude of strong ropes, and by further 
combinations, uniting them in one central executive, anetwork of great 
power and efficiency may be evolved, welding together in harmony j 
every banking interest in the country. All this may be looked upon 
as a most hopeful step in the direction of combining the resources and 
brains of a lot of otherwise helpless, because isolated, factors in our 
system. In fact, the isolation of reserves and resources distributed 
over vast areas has thus far been the weak and threatening attribute 
in time of danger of our whole banking outfit. 

IMPORTANT NEW PROVISION FOR BANK-NOTE SECURITY — COMMERCIAL 

PAPER. 

Its other principal defect relates to the bank notes, which are rigid 
and irresponsive to the rise and fall of business demand for them, have 
no provision for gold redemption to keep them automatically inter- 
changeable with gold and as good as the metal itself; and being thus 
deprived of the attributes of true currency and resting on a false basis 
of bond security, have steadily expanded in volume, producing dan- 
gerous inflation, which must eventually prove serious. 

It is in this second direction of improvement in the bank notes that 
the emergency-currency act offers a further step toward the solution 
of the currency problem. This improvement lies in the provision for 
using commercial paper as a basis for bank notes. 

This was but a small and timidly entering wedge when the act was 
being welded, and in fact as completed the limitations appeared to 
make the provision nearly useless. Under the law the term '^ com- 
mercial paper" is held to include only notes representing actual 
commercial transactions, bearing the names of at least two responsible 
parties and having not exceeding four months to run. This descrip- 
tion would seem at first reading to cover only what is known as 
^' bills receivable," a kind of commercial paper which formed atone 
time (20 or 30 years ago) the bulk of the paper discounted for cus- 
tomers by banks. It was the paper given by the jobber to the whole- 
saler and manufacturer in payment for merchandise and constituted 
.at the time the best paper in the country, representing as it did actual 



SUGGESTIONS RESPECTING PEOPOSED CURRENCY REFORM. 189 

transactions based upon the transfer of merchandise to the retailer, 
the notes given in exchange to be paid for out of the proceeds of sales 
of such merchandise. But the great growth of concerns and corpora- 
tions and general business and credit has largely eliminated this kind 
of paper. The retailer or jobber rarely now gives his notes for pur- 
chases, but buys in open account. The large merchants or corpora- 
tions wislimg to borrow give then* own paper to the bank. In the 
West and South and m the smaller localities the custom has not alto- 
gether changed and banks discount the bills receivable of customers 
to a certain extent. 

LATEST RULING ON ^^ COMMERCIAL PAPER." 

Secretary MacVeagh has recently wisely ruled that a bank may use 
under the emergenc}^ act such one-named paper as is approved by 
the national currency associations, the bank's mdorsem.ent consti- 
tuting the second name, and holdmg that these notes represent actual 
commercial transactions. This permits the use as collateral to emer- 
gency currency of an enormous volume of commercial paper as secur- 
ity, which it was supposed at first was barred out from such use. 

WHY BOND SECURITY SHOULD NOW BE COMPLETELY ELIMINATED. 

The act should now be amended, confming the security for the notes 
altogether to commercial paper and completely excluding any kmd 
of bonds for this purpose. 

The reasons are vital and may be briefly stated. 

The bank notes of a country to be sound and most useful must be 
based upon the solvent obligations, notes, and acceptances of the 
business people of that country — obligations which are constantly 
maturing, are promptly met when due, and the proceeds of whose 
payment constitute automatically a genera] fund for the retirement 
of the bank notes. Bank notes are actually the promise to pay on 
demand of the banker, given in exchange for the business notes of 
the customer, because the banker's notes can be used as cash by the 
customer. The bank notes are m the natural course of business 
promptly presented for payment when they have served the tem- 
porary purpose of convenient currency and are paid by the banker 
out of the maturing proceeds of the customer's notes which were 
originally discounted. 

Bank notes based upon Government or other bonds have no provi- 
sion in the bonds which would secure for the notes prompt pa^mient 
in cash, bonds being a fixed form of investment intended to run for 
years. The barJ^ notes become at once imbued with the fixed and 
rigid character of the bonds, are not retired except when the condi- 
tions of the bond market make it expedient to retire them, and instead 
of rising and falling in total amount with the volume of business which 
they are intended to facilitate they constanth^ press toward perma- 
nent increase and paper inflation. 

That is exactly what has happened and will continue to happen 
with our national bond-secured bank notes, which have now reached 
an enormous aggregate and are swelling toward the danger point, 
where, being inferior to gold, they will drive the metal out of the 
country and put us on a paper basis, with all the evils attending 
such a disaster. 



190 SUGGESTIONS KESPECTIKG PROPOSED CUEEENCY EEFOEM. 

NATIONAL CURRENCY ASSOCIATIONS OPEN WAY TO ELIMINATE BOND 

SECURITY. 

The bond security of the national-bank notes must be done away 
with, and the logical and sound economic substitute for the bonds is 
commercial paper. 

The national currency associations become at once in this operation 
a most happ}^ and effectual agent for such substitution. Let the 
banks in the association send in commercial paper which, when passed 
upon the same as collateral for the emergency currency, shall take 
the place of the Government bonds, which will be returned to the 
banks ownmg them. In order that a great mass of Government 
bonds thus rendered practicall}" unavailable for bank mvestment 
shall not be offered for sale in large amounts, which would tend to 
depreciate theh price, perhaps rumousl}', let the Government provide 
an additional 1 per cent per annum interest on all the twos, thus mak- 
ing them desirable for trust funds, savings banks, and conservative 
estates, and so maintaining their price value in the general market. 
The banks may then gradually dispose of the bonds advantageously, 
and indeed, if necessary, a limit as to the amount of substitution of 
commercial paper for bonds may be placed — so much per week or 
month — and applications may be considered m order as received, so 
that the Government bonds will be returned to the banks and come 
upon the market gradually. 

It may be argued that this act of paternalism in helping the banks 
out on their bonds on the part of the Government is unwise. But it 
must be remembered that the Government has received full compen- 
sation in disposing originally of these bonds at prices 20 points higher 
than their real value, due to the banks being allowed to use them for 
circulation; that the party in power is responsible for the present 
currency system, and that the situation must be remedied promptly 
in the interests of the Government as well as the whole United States. 
The augmented interest charge is a fleabite in comparison with the 
good to be accomplished. 

WOULD PLACE WHOLE LINE OF NATIONAL-BANK NOTES ON SOUND 

BASIS. 

With this substitute arranged for we would immediately have our 
whole line of bank-note currency placed in order for readjustment 
upon a correct basis of the utmost soundness and efficiency, and wlien 
the substitution was completed this important phase of the problem 
would be left in satisfactory shape on the most modern lines. Daily 
redemption of the bank notes, just as checks are redeemed daily, 
could be conveniently arranged, and the whole body of national-bank 
notes now out would, if the matter of gold reserves (to which we shall 
refer later) had also been adjusted, become at once scientifically elastic, 
and the question of further issues for emergencies would be cared for 
by the revised Aldrich-Vreeland Act with its graduated tax — revised 
as we have suggested by eliminating bonds of any kind as security. 

Judging by past experience, it will not be possible to reform our 
present system completely, at once adopting a new system with the 
most modern methods. If the steps above indicated can be taken 
and a gold reserve against vail notes established by increasing the 



» 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 191 

redemption fund, now 5 per cent, to say 20 per cent, to be main- 
tained in gold, we shall have advanced - materially on the road to 
betterment, and such advance would undoubtedly open the way to 
a more complete and adequate plan. 

IMPORTANCE OF THE NATIONAL CURRENCY ASSOCIATIONS IN FINAL 

COMPLETE REFORM. 

The banking business should be taken out of the hands of the 
Government through some form of central bank. 

If this should be finally undertaken, the national currency asso- 
ciations would enter in as a most valuable component part of the plan. 

It has been urged against a central bank for the United States 
that the conditions of our country and our Government make it 
impracticable; that forbidding factors are the ''vast territorial 
area, the diverse and dissimilar interests, the traditions, the sectional 
ideas, and the partisan prejudices of the people." But in these 
associations we have every interest, every part of the country, every 
prejudice, every peculiar custom or sectional requirement repre- 
sented, and each section's demands recognized and provided for 
by its own local association, which has equal power with every other 
in directing operations. If a central association should be formed 
by all the national currency associations and its directors and man- 
agement elected by vote of all, the far-distant and sparsely settled 
regions to have equal voting power with the most populous and 
pow^erful financial sections of the East, all interests would be harmo- 
nized and the best interests of all conserved. 

CENTRAL CURRENCY ASSOCIATION'S BANK. 

This central association could perform all the functions of a cen- 
tral bank, hold the reserves of all, issue the currency, regulate rates 
of interest, control the out and in flow of gold, and stand as a bulwark 
against strain and panic. It might be named the "Central Cur- 
rency Association's Bank," and the national currency associations 
throughout the country might, under proper organization, act as its 
branches. 

The Government should be represented on its board, but by reason 
of majority control by all the currency associations of the United 
States political and \'^all Street influences would be completely 
eliminated. It would be a business organization for the benefit of 
all the banking and business interests of the United States. 

Its formation is so easy, so imminent, and so logical whenever the 
national currency associations have been widely organized that it 
would seem almost unnecessary to urge it. Nevertheless, much 
urging will be required. 

PRESENT SCATTERED RESOURCES. 

^I'^lien we look at our present situation, fraught with inconvenience 
and danger, prompt action is certainly demanded. In times of 
panic our reserves are scattered in 22,000 locations, and at the first 
sign of dang-r are locked up and rendered useless. Our commercial 

2736—13 13 



192 SUGGESTIONS EESPECTIISTG PROPOSED CURRENCY REFORM. 

assets are largely in local promissory notes, which have no general 
market. These assets, in the form of bills of exchange, of which 
our system is almost absolutely deprived, are depended upon by 
every civilized nation for fluid credit. With us they are frozen and 
lifeless in the vaults of the bank of each locality. The banks, unable 
to realize on these assets, stand alone in times of danger, paralyzed, 
and ineffectual. 

All this can be changed and must be changed. 

MOBILIZING COMMERCIAL ASSETS BY BILLS OF EXCHANGE. 

The promissory note should be replaced by the bill of exchange; 
that is, by the draft of the customer at three or four months on his 
banker, who has arranged to accept it, charging a commission (say 
one-quarter of 1 per cent) for so doing, instead of cashing or dis- 
counting the note. This acceptance of the bank is in the nature of 
high-class paper and would come to be freely purchased in the open 
market at very reasonable rates, either by other banks in funds or 
by private investors. Once established, there would always be 
a free market for such bills. Replacing, as they would, promissory 
notes all over the country, the commercial assets of the banks would 
become liquid and would furnish powerful material for quenching 
panics. 

BEGINNING OF CURRENCY REFORM. 

All these are matters which can be readily worked out and would 
follow one after the other if a substantial start were made. It 
would seem that the two beneficial provisions in the emergency law, 
to which this article is intended to direct attention, if acted upon in 
some such manner as here suggested, would effect a most hopeful 
beginning. 

Great power is needed to start this business forcefully. 

It devolves upon President Taft to at once take up currency 
reform. All other reforms sink into insignificance in comparison 
with this one. He would have no other man's policies here to carry 
out. In all the agitations for alleged righteousness during the past 
seven years this greatest evil that can afflict a nation, a defective 
and dangerous banking and currency system, has not been even 
sniffed at. Let President Taft use the great power of the presidential 
office to propose and insist upon righting this greatest of wrongs to 
all the people. He will be ably assisted by the National Monetary 
Commission and by the banking interests and the intelligent thinking 
people of the country. 



THE COMING AUTUMN STRAIN. 

Then comes the fall with its crop -moving demands, which take 
about $150,000,000 out of reserves, making it necessary to cut down 
loans here $500,000,000 or $600,000,000. If the volume of business 
persists, or even increases, as it should with another good crop ahead, 
where is the money to come from to carry us through the fall season ? 
Present indications ar3 that we shall have a most difficult situation to 
meet. We have no banking and currency machinery to help through 



1. 



SUGGESTIONS EESPECTING PROPOSED CUEEEITCY REFOEM. 193 

such a season — that is, no sound economic system adequate to ame- 
liorate such pressure as we will be under. 

Perhaps the most important part of President Wilson's message on 
the tariff was in the last paragraph, disclosing his appreciation of the 
great importance of currency reform, when he said: 

At a later time I may take tlie liberty of calling your attention to reforms which 
should press close upon the heels of the tariff changes, if not accompany them, of 
which the chief is the reform of the l)anking and carrency laws. 

The truth is this last is far more important than the tariff subject 
and it is only political exigencies which place the latter first. There 
is every reason to believe, as has been said, that a very serious situa- 
tion will confront the country next autumn, and it can not be too 
strongly impressed upon Congress and upon President Wilson that a 
sound banking bill must be passed immediately to avert the danger 

NATIONAL CUREENCY ASSOCIATIONS. 

It is true we have the emergency currency act, and if through 
great misfortune President Wilson does not succeed this could be 
whipped into shape to meet the crisis. In fact this emergency cur- 
rency law is a clumsy skeleton of both the Aldrich law and the regional 
reserve proposition, which the Democratic House committee is said 
to have under consideration. One of the sound provisions of the 
emergency act was that for the establishment of national currency 
associations. These are permitted to be organized by not less than 
10 banks in any locality, with an aggregate capital and surplus of not 
less than $5,000,000. The members are jointly and severally respon- 
sible for the ^operations of the association to which they belong. 
Through these associations currency can be issued upon the pledge of 
assets to banks applying, and in the vaults of the Treasury 
$500,000,000 of such currency is lying ready for use. Secretary of 
the Treasury MacVeagh two years ago very wisely urged upon the 
banks of the country to organize at once in these associations. As a 
result of this, however, only 18 of them were formed in different parts 
of the country. If the provision were availed of to the limit, 600 or 
700 associations would come into existence. It would be a very wise 
thing for the new Secretary of the Treasury to push the formation of 
these associations all over the country. In carrying out whatever 
plan is thus far proposed this work would not be wasted, because, as 
has been said, these national currency associations are the basis of 
any proposed plan. 

Further than this, they would furnish machinery in any event to 
meet the strain of the coming autumn. No matter what happens 
in Congress the law is on the books, and the currency associations 
should be promptly organized throughout the entire country. 



MUTUAL DEPOSIT INSURANCE. 

[By John Schuette, president of Manitowoc Savings Bank.] 

Except war or revolution, there is nothing that will retard progress, 
discourage enterprise, and paralyze business as much as a loss of 
confidence; and there is nothmg which will shatter confidence 
more than bank failures, because the character of a bank is con- 



194 SUGGESTIONS EESPECTING PROPOSED CUERENCY REFORM. 

sidered of the highest credit and responsibility. Therefore the 
saying ^^as good as a bank," and if these fail, confidence is greatly 
shaken in everything and everybody. 

Our business is done on 5 per cent cash agamst 95 per cent credit — r 
confidence; hence it follows that if 5 per cent should be tied up in 
a bank failure, this is nothing in comparison to the 95 per cent credit 
loss. 

A financial expert estimated that the loss to all our different inter- 
ests in the United States, owing to the blighting effect of the 1907 
panic, was over $2,000,000,000, while the direct loss to depositors in 
failed banks was but a few millions. 

According to this estimate, Wisconsm's share of loss in consequence 
of this panic must have been many million dollars, wholly caused by 
the loss of confidence by bank failures elsewhere. Wisconsin has 
not lost a dollar to its depositors by the failure of a State bank for 
the last five years. 

But the money is nothing in comparison to the mental stram, the 
uncertainty, the suspense and fear which continually hover over 
our whole population with depressing effect. It is just about the 
same as lightning; while it may not strike one in ten millions many 
thousands get a nervous shock every time they see a flash. 

That our banking system was defective was recognized, but not 
until the panic of 1907 were so many remedies proposed to effect a 
cure. Nearly all the financial doctors prescribed asset currency, 
branch banking, central banks, etc.; all of which proposed to increase 
our currency without securing it as safely as our bank notes are now 
secured. This would bring our whole banking system to a lower 
standard than it now is. 

It is surprising that these financial doctors never diagnosed the 
banking disease correctly. They treated it as a bodily disease (the 
currency) which is perfectly sound, and they fail to apply a remedy 
to the mental disease (the panic fear) by which the depositors are 
periodically attacked. They must have forgotten that the disease 
they attempt to cure (our diseased currency) was cured and entirely 
disappeared 47 years ago. 

If our deposits are cured as sound as our currency was 47 years 
ago, the body and soul of our banking system will be in the prime 
of health and nothing else will be required. 

The only remedy which went to the root of the evil was proposed 
by our unlucky Bryan, and to offset this the Republican Party adopted 
a limited deposit insurance measure by the postal savings banks, 
which are now in operation. Of course the opening up of over 40,000 
Government banks, guaranteeing deposits, aroused the whole financial 
fraternity to action to meet the competition. 

Congress was prevailed upon to send a committee all over creation 
to study finance and find a remedy. Well, the committee returned 
with a foreign product, free of duty, a kind of imperial royal bank 
to be in charge of a governor and 45 deputy governors appointed by 
the President; the capital of this bank to be $300,000,000, for 
which only national banks can subscribe. 

This bank wUl kindly ask the United States to hand over to it all 
its m meys, and disburse all without cost, and relieve the United 
States wholly of its financial burden. How patriotic. It wUl also 
control all bank-note issues which may be secured by one-third gold 



SUGGESTIONS EESPEGTIN'G PEOPOSED CUEKENCY EEFOEM. 195 

and the balance in bonds or commsrcial paper (promissory notes), 
and as fast as issued, the same amount of national bank notes to be 
retired. 

Of course the committee itself knows that such bill will not have the 
remotest chance of adoption, bat they had to show something for their 
labor, although it shows that they failed to find a remedy. So I need 
not enlarge on this further and will get nearer home and analyze what 
our State of Wisconsin proposes to offer as a remedy. This I under- 
stand is a plan to segregate savings deposits from commercial deposits, 
under which all savings deposits must be kept in a special class and 
invested in bonds and mortgages for the benefit of savings depositors 
only. By this it is hoped that the savings depositors would feel as 
safe in their deposits as they would in postal savings banks. 

While this might do in a small degree, it will never equal the Gov- 
ernment guaranty. Another question, Who would be the savings 
depositors? Only those who deposit in savings books? Would it 
include all savings evidenced by interest-bearing time certificates of 
deposits, which amount to over twice the amount of that in savings 
books, and would it include all deposits drawing interest? This 
would be a complex question to determine. 

Then, again, how would this affect the other depositors of a bank 
drawing no interest? Would this not give notice to them that their 
deposits were not as secure as those of the savings depositors who 
deposit in a bank which secured Grovernment deposits No. 1, secure 
savings deposits No. 2, and all other depositors, but not secure No. 3 at 
the tail end? No; this will never do. 

No bank having three different secured dej>ositors will ever gain the 
confidence of the people. It would bemuddle, mystify, and discredit 
all our banks. But, let me see; could we not overcome these objec- 
tions by entirely segregating the savings banks from commercial 
banks ? Why, y es ; how easy. 

The savings depositors could deposit in savings banks and trust 
companies who would invest all deposits in bonds and mortgages for 
the benefit of all their depositors, without preference. Then all would 
be in one and the same class. This would solve the whole question, 
would it not ? Yes ; but let me see. 

No; I strike another snag. In most places a new savings bank 
would have to be organized, and where the addition of another bank 
might so curtail the profits that neither bank could exist. This would 
endanger the safety of all banks. This again will not do. 

It is just like a compass. Turn it as you may, it will always point 
to true north again. And so our banking problems, turn them as 
you may, they wiU always point back again to the only true course — 
deposit insurance. 

Now, let me suggest an amendment to our banking laws, which I 
am confident will accomplish what you desire and meet the compe- 
tition of the Government. This is to insure all bank deposits. It is 
not a party measure. The Republican Party was committed to it 
about 47 years ago, when it secured one part of our bank liabilities, 
its bank notes ; again, 47 years later, m a second installment, when it 
secured the savings depositors by the postal savings banks. 

And the Democratic Party committed itself to it in its platform, 
and the progressive element must be in favor of the plan, because it is 
in line with their progressiveness, and of course the Socialists will 



196 SUGGESTIONS EESPECTING PROPOSED CUEEENCY EEFOEM. 

embrace it as their own. And as to the people — why, there is nothing 
by which the legislators and bankers could ingratiate themselves more 
in the hearts of our people than to insure their deposits. Therefore 
there seems to be everything in favor of the adoption of the plan. 

As some may know that I preferred national to State deposit 
insurance, I will explain why this change of thought. After years of 
effort to move our large, unwieldy Congress to adopt the deposit 
insurance plan without avail, I despaired and pondered to find the 
reason why. When I was reminded that it required a war, the roar 
of guns, to arouse Congress to insure our bank notes; and again, 47 
years later, the panic of 1907, to arouse it to insure the depositors by 
the postal savmgs banks, and the fear that it will require another 
disaster to arouse it to insure all bank deposits, and to save Wisconsin 
from such disaster, is the main reason why I now urge State deposit 
insurance, and for one other reason. 

When Oklahoma adopted the deposit plan it was predicted it 
would prove a failure, encourage wildcat banking, etc., and after two 
years' operation, in which time three banks failed, it caused no panic 
or disturbance of any kind, depositors were paid, and wildcat banking 
is being eradicated, which is natural, as every bank is interested in 
the safety of every other bank, and therefore the bankers are alert to 
see to it that the laws are safe and more rigidly administered and bank 
examination more stringent. 

If deposit insurance proves a success in this State, surely an old 
State like Wisconsin, which the report says has had no deposit loss in 
State banks in five years, may well be encouraged to adopt the plan 
without the least fear of failure. 

The amendment I offer will be on the mutual insurance plan, with 
this difference — that it would be under State control and the funds 
in the custody of the State. The synopsis of which would be as 
follows : 

First. The insurance fund to consist of a reserve and premium fund, 
over which the commissioner of banking shall have control and shall 
have power to reject a charter to a new bank for cause, as now exer- 
cised by the national bank comptroller. 

Second. Every bank shall deposit with the commissioner of bank- 
ing its certificates of deposit in an amount of 1 per cent of its capital, 
but if the deposit exceed its capital then on its average deposits, 
payable to him in part or whole on demand, which shall constitute 
the reserve fund, and which a bank may carry on its books as an asset. 

Third. Every bank shall pay annually to the commissioner of 
banking 1 mill on each dollar of its capital, but if the deposits exceed 
the capital, then on its average deposits, subject to reduction. This 
to constitute the premium fund out of which all losses should be 
paid. 

Fourth. If a bank shall discontinue having paid all its depositors, 
all that portion due it in the insurance funds shall be returned to it. 

Fifth. The deposits of a bank shall not exceed ten times its capital 
(I would prefer only six times) . 

Sixth. After the commissioner of banking finds a bank insolvent, 
he shall wind it up, pay and collect in the usual way, and draw on 
the insurance funds if necessary. 

Seventh. All deposits not drawing over 2 per cent interest shall be 
paid in full — 100 per cent. All drawing more than 2 and not over 



SUGGESTIONS RESPECTING PROPOSED CURRENCY REFORM. 197 

3 per cent shall be paid 95 per cent. All dj-awing over 3 and not over 

4 per cent shall be paid 90 per cent. All drawing over 4 per cent shall 
be excluded from the protection of the insurance. 

Eighth. All national banks may avail themselves of the insurance 
plan under the same terms, and subject to the regulation as the com- 
missioner of banking may require. 

A bank's habihty would be limited to the 1 per cent reserve cer- 
tificate and not to exceed in any one year 1 mill on each dollar deposit. 
Under this amendment at the present time the insurance funds, would 
be approximately as follows: 

The reserve fund at 1 per cent on $140,000,000 would be |1, 400, 000 

The premium fund, 1 mill on $140,000,000, would be 140, 000 

Total 1, 540, 000 

Now let me show that these funds, in comparison in amount and 
class of risk in other lines of insurance, will give to the depositors ten 
times more safety than they have in their fire insurance policies, for 
the reason that the fire insurance companies' reserve funds represent 
on an average 1 per cent on each dollar at risk, while the reserve fund 
to depositors represent the same 1 per cent but insures deposit loss, 
which is one-tenth of fire losses. 

The insured fire loss m the United States is about $220,000,000, in 
Wisconsin about $4,000,000, while the deposit loss in Rye years in 
Wisconsin State banks was nothing. 

We may not be able to leg'slate to prevent business depressions or 
hard times, we can not legislate to prevent bank failures, but we 
can legislate to prevent the disasters which follow in the trail of 
bank panics. 

In conclusion, I perhaps ought to explain because it seemed to some 
a mystery why I so persistently advocate a measure which if adopted 
would lift all banks to the same level as to safety, and by which I 
would lose, by dividing the advantage I may now have with others. 

Here is the answer: 

If anyone had seen, as I have seen, the worry and suffering of our 
people over the safety of their money and the disastrous effects of 
bank panics to all interests, one could not fail to advocate a measure 
which he believed would give relief at an infinitesimal cost by the 
insurance plan. 

Believing that such insurance would do this and prove an incalcula- 
ble benefit to all our people, of which I am a part, I do not fear that 
I should not get my share of the accruing benefits ; and if I should lose 
in a material way, which is not certain, I am willing to bear it, as I 
would derive more comfort by having contributed to a cause which 
will relieve the people of a burden and for which a money value would 
be no equivalent. 

Another reason is, because I feel confident that absolute safety 
of deposits is the only panic preventive, that it must come either by 
State or national enactment or by insurance corporations, which 
latter are now preparing to enter the field, which would treble the cost, 
and not inspire the requisite confidence. 

Therefore I believe that we had better select this plan, which will 
prove the most economical, the safest, and the easiest obtainable. 



i 



INDEX TO NAMES. 



Page. 

Atkins, Wade, banker, Waurika, Okla 141 

Austin, Charles, banker. Battle Creek, Mich 98-99 

Barker, Wharton, Philadelphia, Pa 62-63 

Barstow, Wm. J., Philadelphia, Pa 95-96 

Bartlett, Geo. D., secretary Wisconsin Bankers' Association, Milwaukee, Wis.. 147-157 

Baughman, Chas. W 183-186 

Beal, Thomas P. , banker, Boston, Mass 90 

Becker, A. G., & Co., Chicago Association of Credit Men 72 

Berg, I. D., Chicago Association of Credit Men, Chicago, 111 72 

Blumauer-Frank Drug Co., Portland, Oreg 44-45 

Boies, Horace, lawyer, Waterloo, Iowa 45-50 

Bond, R. J., Oklahoma House of Representatives 21 

Boone, Edwin, banker, Reading, Pa. 124 

Branch, John P., banker, Richmond, Va 3-5 

Burrell, D. H., manufacturer and merchant. Little Falls, N. Y 39-42, 51-55 

Church, C. H., banker, Muncie. Ind 55-62 

Coffin, Geo. M., New York ' 6-11 

Conant, Chas. A. , Economist, New York 83 

Cornwell, Wm. C. , monetary expert 186-193 

Corrington, Murray, Indianapolis, Ind 69-70 

Craddock, John W. , merchant, Lynchburg, Va 157 

Craig, Frank, banker, McAlester, Okla 17-18 

Emmers, P. J. , Lawrenceburg, Ind 99-106 

Fink, D. N., banker, Muskogee, Okla 21 

Frame, Andrew J. , banker, Waukesha, Wis 73-74 

Garner, F. C, agent. Bankers' Life Co., Oklahoma City, Okla 84 

Graham, A. A. , lawyer, Topeka, Kans 63-64 

Gurley, C. D., Denver, Colo 85-87, 157-165 

Hamlin, C. S., lawyer, Boston, Mass 166-172 

Hampton, Geo. P., Grange representative. New York City 25-27 

Hand, J. D., Los Alamos, N. Mex 143 

Hamage, J. L., lawyer, Tulsa, Okla 22-24 

Hemming, C. C., banker, Colorado Springs, Colo 74—75 

Henry, G. G 173-181 

Hill, J. E., manufacturer and merchant, Oklahoma City, Okla 43-44 

Hold en, James D . , Denver, Colo 107-111 

International Shoe Co., St. Louis, Mo 76, 

Johnson, J. (International Shoe Co.), St. Louis, Mo 76 

Laughlin, S . S . , real estate, Apache, Okla 92 

Lieby, E. G. (Blumauer-Frank Drug Co.), Portland, Oreg 44-45 

Lonergan, Owsley, Pawnee, Okla 143-147 

McCarty, James, Hudson Falls, N. Y 98 

MacGinnes, J. S., New York City 64-68 

McHugh, John, banker, Sioux City, Iowa 106-107 

McLaurey, W. G., banker, Chicago Association of Credit Men 72 

Milliken, R. C • 119-123, 141-143 

Motsinger, N. H., manufacturer, Greensburg, Pa 81-83 

Murchison, J. W., banker, Athens, Tex 62 

Myrick, Herbert, editor, Springfield, Mass 125-139 

Norman, Dan, banker, Chicago Association of Credit Men 72 

Offield, J. W., Seattle, Wash 139-140 

Odgen, H. H., banker, Muskogee, Okla. 91 

Paxson, S. W., Lake Arthur, La 87-89 

Phillips, A. B., banker, Texas City, Tex 80-81 

Pryor, D. C, Oklahoma City, Okla 11-16 

199 



200 INDEX. 

Page. 

Ralston, J. H., lawyer, Washington, D. C 123-124 

Ramsey, Asa E., banker, Muskogee, Okla 89 

Rawie, Henry, consulting engineer, Indianapolis, Ind 77-79 

Raymond, P., Denver, Colo 17 

Raymond, S. R., banker, Oklahoma City, Okla 140 

Rothschild, V. Sydney, New York 96-98 

Ruff, Edwin C, banker, Leedey, Okla 75 

Schmidt, Alfred C, banker, Albany, Oreg 20 

Schuette, John, banker, Manitowoc, Wis 193-197 

Sligh, W. K., Jacksonville, Fla 93-95 

Smith, J. Allen, Seattle, Wash 124-125 

Snider, Millard F., lawyer, Clarksburg, W. Va 18-20 

Spain, P. A., physician, Paris, Tex 118-119 

Steele, Geo. H., Rockham, S. Dak 140 

Tregoe, J. H., secretary-treasurer National Association of Credit Men, New York. 27-30 

Tucker, Wm. A., New York 92-93 

Vrooman, Carl , Illinois 89-90 

Waggoner, B . P. , member Kansas Legislature 42-43 

Weitz, Wm., Welch, Okla 95 

Wendling, G., merchant, Portland, Ores: 1-3 

White. William H., Silver City, N. Mex 70-71 

Wiley, P. W., Washington, D. C 172-173 

Wood, H. D., physician, Fayetteville, Ark 75-76 

Wood, H. D., lawyer, Hobart, Okla 111-114 

Woodcock, M. S., banker, Corvallis, Oreg 115-118 

Wrightsman, C. J., oil operator, banker, and merchant, Tulsa, Okla 50-51 

Yates, Henry W- , banker, Omaha, Nebr 30-39 

Yorke, Patrick, manufacturer, Washington, Pa 16, 84-85 

Young, W. J 181-183 

Youngman, E. H., editor, Bankers' Magazine, New York 90-91 

o 



i 




t 



^,, 




